EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475998
Author: Rajan
Publisher: YUZU
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Textbook Question
Chapter 23, Problem 23.20MCQ
ABC Inc. desires to maintain a capital structure of 80% equity and 20% debt. They currently have an effective tax rate of 30%. The company’s
- a. 8.0%
- b. 10.4%
- c. 11.0%
- d. 11.6%
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Students have asked these similar questions
ABC Inc. desires to maintain a capital structure of 80% equity and 20% debt. They currently have an effective tax rate of 30%. The company’s cost of equity capital is 12%. To obtain their debt financing, they issue bonds with an interest rate of 10%. What is the company’s weighted average cost of capital?
a.8.0%
b.11.0%
c.11.6%
d.10.4%
OSA Company has the following values of interest-bearing debt and common equity capital:
Financing Source Dollar Amount Interest Rate Cost of CapitalShort-term loan $200,000 12%Long-term loan $200,000 14%Equity capital $600,000 22%
OSI is in the 30 percent average tax bracket.
A. Calculate the after-tax weighted average cost of capital for OSI.
B. Given that OSI's EBIT is $300,000, compute its EVA.
C. Did the venture build or destroy value? Explain.
Make sure to show all the formulas and calculations in addition to any assumption needed.
Bulldogs Inc., which is funded by debt and ordinary equity, has a debt to equity ratio of 100%. The weighted average cost of capital of the firm is 20%. Using the capital asset pricing model, the cost of equity is determined to be 30%. If the before-tax cost of debt is 16%, what is the applicable tax rate of Bulldogs Inc.?
a. 37.50%
b. 35.70%
c. 25.55%
d. 25.80%
Chapter 23 Solutions
EBK HORNGREN'S COST ACCOUNTING
Ch. 23 - Prob. 23.1QCh. 23 - Prob. 23.2QCh. 23 - What factors affecting ROI does the DuPont method...Ch. 23 - RI is not identical to ROI, although both measures...Ch. 23 - Describe EVA.Ch. 23 - Give three definitions of investment used in...Ch. 23 - Distinguish between measuring assets based on...Ch. 23 - Prob. 23.8QCh. 23 - Why is it important to distinguish between the...Ch. 23 - Prob. 23.10Q
Ch. 23 - Managers should be rewarded only on the basis of...Ch. 23 - Explain the role of benchmarking in evaluating...Ch. 23 - Explain the incentive problems that can arise when...Ch. 23 - Prob. 23.14QCh. 23 - Prob. 23.15QCh. 23 - During the current year, a strategic business unit...Ch. 23 - Assuming an increase in price levels over time,...Ch. 23 - If ROI Is used to evaluate a managers performance...Ch. 23 - The Long Haul Trucking Company is developing...Ch. 23 - ABC Inc. desires to maintain a capital structure...Ch. 23 - ROI, comparisons of three companies. (CMA,...Ch. 23 - Prob. 23.22ECh. 23 - ROI and RI. (D. Kleespie, adapted) The Sports...Ch. 23 - ROI and RI with manufacturing costs. Excellent...Ch. 23 - ROI, RI, EVA. Hamilton Corp. is a reinsurance and...Ch. 23 - Goal incongruence and ROI. Comfy Corporation...Ch. 23 - ROI, RI, EVA. Performance Auto Company operates a...Ch. 23 - Capital budgeting, RI. Ryan Alcoa, a new associate...Ch. 23 - Prob. 23.29ECh. 23 - ROI, RI, EVA, and performance evaluation. Cora...Ch. 23 - Prob. 23.31ECh. 23 - Prob. 23.32ECh. 23 - ROI performance measures based on historical cost...Ch. 23 - ROI, measurement alternatives for performance...Ch. 23 - Multinational firms, differing risk, comparison of...Ch. 23 - ROI, Rl, DuPont method, investment decisions,...Ch. 23 - Division managers compensation, levers of control...Ch. 23 - Executive compensation, balanced scorecard. Acme...Ch. 23 - Financial and nonfinancial performance measures,...Ch. 23 - Prob. 23.40PCh. 23 - Prob. 23.41PCh. 23 - RI, EVA, measurement alternatives, goal...
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