Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
The WACC is a weighted average of the costs of debt, preferred stock, and common equity. Would the WACC be different if the equity for the coming year came solely in the form of retained earnings versus some equity from the sale of new common stock? Would the calculated WACC depend in any way on the size of the capital budget? How might dividend policy affect the WACC?
To explain: If the WACC would be different or not if the upcoming year’s equity comes solely in the form of retained earnings rather than from the new common stock issue and based on the size of the capital budget and dividend policy.
Introduction:
Weighted Average Cost of Capital: It is the WACC (Weighted average cost of capital) of all the sources through which a firm finances its capital. It is the rate that a company will pay to all for raising finance. It can be termed as firm’s cost of capital. The company raises money through various sources such as common stock and preference share debt. The WACC is computed by taking the relative weight of each item of capital structure.
- The WACC would be reduced if the coming year’s equity solely comes in the form of retained earnings rather than from the issue of new common stock.
- WACC depend upon the size of the capital budget. If there is high use of the retained earnings rather than new common stock the firm’s WACC will get decreased. The different sources of raising the capital and cost of each of the source affect the WACC.
- WACC is influenced by the dividend policy of the firm. Higher the dividend payout higher the WACC and minimum dividend payout ratio the lower will be WACC.
- The retained earnings cost is lower than the new equity cost...
Chapter 10 Solutions
Additional Business Solutions
Find more solutions based on key concepts
Show solutions addCAPM AND REQUIRED RETURN HR Industries (HRI) has a beta of 1.6; LR Industries (LRI) beta is 0.8. The risk-free ...
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Financial statements are based on generally accepted accounting principles (GAAP) and are audited by CPA firms....
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Take a minute to conduct a Google search on your name. What comes up? Are you proud of what you see? If you wan...
Essentials of Business Communication (MindTap Course List)
The following data show the number of rental cars in service for three rental car companies: Hertz, Avis, and D...
STATISTICS F/BUSINESS+ECONOMICS-TEXT
(Conditions for Price Discrimination) List three conditions that must be met for a monopolist to price discrimi...
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Describe some of the trade-offs faced by each of the following: a. a family deciding whether to buy a new car b...
Principles of Economics (MindTap Course List)
Why do economists make assumptions?
Brief Principles of Macroeconomics (MindTap Course List)
As of April 2006, roughly 50 million .com web domain names were registered (e.g., yahoo.com). a. How many domai...
Probability and Statistics for Engineering and the Sciences
Comparative Analysis: Under Armour, Inc., versus Columbia Sportswear Refer to the 10-K reports of Under Armour,...
Cornerstones of Financial Accounting
Thomas Robert Malthus believed that population growth would a. put stress on the economys ability to produce fo...
Principles of Macroeconomics (MindTap Course List)
In what ways is your standard of living different from that of your parents or grandparents when they were your...
Principles of Microeconomics (MindTap Course List)
Providing for doubtful accounts At the end of the current year, the accounts receivable account has a debit bal...
Corporate Financial Accounting
What are some of the benefits and limitations of a team?
Foundations of Business (MindTap Course List)
Sales-related and purchase-related transactions for seller and buyer using perpetual inventory system The follo...
Financial & Managerial Accounting
Name the five principles delineated by COBIT 5.
Accounting Information Systems
For the current year, Packers Company decided to switch from the indirect method to the direct method for repor...
Financial And Managerial Accounting
The following table shows the sales and average book value of fixed assets for three different companies from t...
Financial Accounting
Surveys by the Conference Board show that job satisfaction has declined from 61 percent of people surveyed in 1...
Management, Loose-Leaf Version
Why should policymakers think about incentives?
Essentials of Economics (MindTap Course List)
The cash register tape for June 30 showed cash receipts of 876, and the cash in the register drawer was 1,070. ...
College Accounting, Chapters 1-27
The provision of accounting information for internal users is known as a. accounting. b. financial accounting. ...
Managerial Accounting: The Cornerstone of Business Decision-Making
What is an ERP system?
Accounting Information Systems
Contrast the focus of marketing activities during the five eras of marketing history.
Contemporary Marketing
Define the term marketing
MKTG 12:STUDENT ED.-TEXT
The schedule of accounts payable lists each creditors account balance, and the total equals the _______________...
College Accounting (Book Only): A Career Approach
Share Options A corporation has a non-compensatory share purchase plan for all its employees and a compensatory...
Intermediate Accounting: Reporting And Analysis
EXPECTED INTEREST RATE The real risk-free rate is 3%. Inflation is expected to be 3% this year, 4% next year, a...
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Seaforth International wrote off the following accounts receivable as uncollectible for the year ending Decembe...
Financial Accounting
Classify costs Cromwell Furniture Company manufactures sofas for distribution to several major retail chains. T...
Financial & Managerial Accounting
The Kroger Company is one of the largest grocery retailers in the United States, with over 2000 grocery stores ...
Statistics for Business & Economics, Revised (MindTap Course List)
Effect of errors in physical inventory Missouri River Supply Co. sell s canoes, kayaks, whitewater rafts, and o...
Accounting (Text Only)
Illustrate the SRATC, AVC, MC, and MR curves for a perfectly competitive firm that is operating at a loss. What...
Exploring Economics
Some potential E-business customers have security concerns regarding online purchases. How do Internet security...
Pkg Acc Infor Systems MS VISIO CD
Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equili...
Principles of Macroeconomics (MindTap Course List)
Which of the following does not affect the bank statement? a. Credit memo b. Debit memo c. Overdraft d. Electro...
College Accounting (Book Only): A Career Approach
COMPUTING WEEKLY GROSS PAY Ryan Lawrence's regular hourly rate is 15. He receives 11 times the regular rate for...
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Consider a law that limits womens access to certain dangerous occupations such as coal mining and military comb...
Economics For Today
Avion, Inc. Susan Dey and Bill Mifflin, procurement managers at Avion, Inc., sat across from each other and rev...
Purchasing and Supply Chain Management
High drug costs are often in the news. Consumer groups contend that the pricing for some drugs (e.g., HIV anti-...
Cornerstones of Cost Management (Cornerstones Series)
a. In what respect does treasury stock differ from unissued stock? b. how should treasury stock be presented on...
Survey of Accounting (Accounting I)
If the absolute (or money) price of good A is 40 and the absolute price of good B is 60, what is the relative p...
Microeconomics
If individuals remove funds from their checkable deposits and transfer them to their money market accounts, wil...
Economics (MindTap Course List)
What do the following data, taken from a comparative balance sheet, indicate about the company's ability to bor...
Corporate Financial Accounting
As the accountant for Monroe Trucking Company, you are preparing the companys annual return, Form 940 and Sched...
PAYROLL ACCT.,2019 ED.(LL)-TEXT
