Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Question
Chapter 13, Problem 15P
To determine
The weighted average cost of capital for the company.
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suppose your company needs $43 million to build a new assembly line. your target debt-equity ratio is .75. the flotation cost for new equity is 6 percent, but the flotation cost for debt is only 2 percent. your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.
EFG Corporation ("EFG") is a Canadian-controlled private corporation and has correctly calculated its net income for tax purposes to be $857,000 for the year ending December 31, 2019, as shown below:
Business income $710,000
Taxable capital gains $80,000
Taxable dividends from Canadian public corporations $32,000
Taxable dividends from XYZ Inc. $5,000
Interest on five-year bonds $30,000
Net income for tax purposes $857,000
EFG owns 100% of the shares of XYZ. For the current year, XYZ claimed the small-business deduction on $80,000 of its active business income.
Additional information:
• EFG made charitable donations of $45,000 during the year
• Net capital losses were $35,000 as of January 1, 2019
• Non-capital losses were $50,000 as of January 1, 2019
• At the end of the previous year, EFG had a balance in its non-eligible refundable dividend tax on hand (RDTOH) account of $18,000 and GRIP of $2,000. XYZ received a dividend refund of $1,917 from its non-eligible RDTOH when it paid…
State whether each of the following involves debt financing or equity financing: (a) A bond issue for $3,500,000 by a city-owned utility (b) An initial public offering (IPO) of $35,000,000 in common stock for a dot-com company (c) $31,000 taken from your retirement account to pay cash for a new car (d) A homeowner’s equity loan for $40,000
Chapter 13 Solutions
Engineering Economy (17th Edition)
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