4th Time posting same QUSETION; I have due on tomorrow assignment; please some one help and provide correct answer.Problem 9-17
WACC Estimation

The table below gives the balance sheet for Travellers Inn Inc. (TII), a company that was formed by merging a number of regional motel chains.

Travellers Inn: December 31, 2012 (Millions of Dollars)
Cash $10 Accounts payable $10
Accounts receivable 20 Accruals 10
Inventories 20 Short-term debt 5
Current assets $50 Current liabilities $25
Net fixed assets 50 Long-term debt 30
Preferred stock 5
Common equity
Common stock $10
Retained earnings 30
Total common equity $40
Total assets $100 Total liabilities and equity $100
The following facts also apply to TII:

1. Short-term debt consists of bank loans that currently cost 8%, with interest payable quarterly. These loans are used to finance receivables and inventories on a seasonal basis, bank loans are zero in the off-season.

2. The long-term debt consists of 30-year, semiannual payment mortgage bonds with a coupon rate of 8%. Currently, these bonds provide a yield to investors of rd= 12%. If new bonds were sold, they would have a 12% yield to maturity.

3. TII's perpetual preferred stock has a $100 par value, pays a quarterly dividend of $2.50, and has a yield to investors of 11%. New perpetual preferred would have to provide the same yield to investors, and the company would incur a 3% flotation cost to sell it.

4. The company has 4 million shares of common stock outstanding. P0 = $20, but the stock has recently traded in price the range from $17 to $23. D0 = $1 and EPS0 = $2. ROE based on average equity was 26% in 2008, but management expects to increase this return on equity to 31%; however, security analysts and investors generally are not aware of management's optimism in this regard.

5. Betas, as reported by security analysts, range from 1.3 to 1.7; the T-bond rate is 10%; and RPM is estimated by various brokerage houses to be in the range from 4.5% to 5.5%. Some brokerage house analysts reports forecast dividend growth rates in the range of 10% to 15% over the foreseeable future.

6. TII's financial vice president recently polled some pension fund investment managers who hold TII's securities regarding what minimum rate of return on TII's common would make them willing to buy the common rather than TII bonds, given that the bonds yielded 12%. The responses suggested a risk premium over TII bonds of 4 to 6 percentage points.

7. TII is in the 35% federal-plus-state tax bracket.

8. TII's principal investment banker predicts a decline in interest rates, with rd falling to 10% and the T-bond rate to 6%, although the bank acknowledges that an increase in the expected inflation rate could lead to an increase rather than a decrease in interest rates.

Assume that you were recently hired by TII as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets TII now operates. Do not round intermediate steps. Round your answer to two decimal places.

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NOTE:

Wrong Answers:
14.29% & 14.76% --> Please someone give me right answer, I am posting same question 4th time; please dont post spam.

--> It's Problem 9-17 of mangerial finance course WACC Estimation problem; required to consider above table with given 8 assumption to get WACC value; it will be only one answer liike 15.12%; 17.32%.....

Answers

Answer 1
Answer:

Answer:

Explanation:

(1) Cost of short-term debt after tax : 8% ( 1 – tax rate)

                                                                 = 8% ( 1 – 35%)

                                                                = 8% (65%)

                                                                = 5.2%

Market value of Short term debt ( in million $) = 5

(2) Cost of long-term debt after tax: 8% ( 1 – tax rate)

                                                 = 8% ( 1 – 35%)

                                                 = 8% (65%)

                                                 = 5.2%

Market value of long term debt ( in $ million) = ( par value of Debt * coupon rate) / Yield

                                                                                 = (30 * 8%) / 12%

                                                                                  = 2.4 / 12%

                                                                                  = 20

(3) Market price of preferred stock = annual Dividend / Yield to investor

                                                              = ($2.50*4) / 0.11

                                                              = $ 10 / 0.11

                                                              = $ 90.909

     

Cost of new preferred stock = Annual dividend / Current market price – floatation cost

                                                        = ($2.50*4) / $ 90.909 – ( 3% * $ 90.909)

                                                        = $ 10 / $ 90.909 – $ 2.727

                                                        = $ 10 / $ 88.182

                                                        = 0.1134

                                                        = 11.34%

Market value of Preferred stock ($ millions) = Par value of Preferred * Annual Dividend rate / Yield

                                                                              = 5 * ( $ 10 / $ 100) / 0.11

                                                                             = 5 * 0.1 / 0.11

                                                                             = 0.5 / 0.11

                                                                             = 4.545454

(4)  Market value of Common stock ($ millions) = No of common stock outstanding * Current market price

                                                                             = 4 * 20

                                                                             = 80

Retention ratio = (1 – dividend pay-out ratio)

                           = (1 – $1 / $ 2)

                          = (1 – 0.5)

                          = 0.5

                          = 50%

Growth rate = return on equity * retention ratio

                      = 26% * 0.5

                      = 13%

Cost of common stock (Alternative 1) = (Dividend for next year / Current market price) + growth rate

                                                                  = [1 ( 1+ 0.13) / 20 ] + 13%

                                                                  = [1 ( 1.13) / 20 ] + 13%

                                                                  = [1.13 / 20 ] + 13%

                                                                 = 5.65% + 13%

                                                                 = 18.65%

Cost of common stock (alternative 2) = Risk free rate + Beta (Market risk premium)

                                                                 = 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]

                                                                = 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]

                                                               = 10% + (1.5)( 5%)

                                                               =10% + 7.5%

                                                              = 17.5%

                     

Cost of Common stock (Alternative 3) = Yield on TII Bond + Average Risk premium

                                                                       = 12% + (4% + 6%) / 2

                                                                       = 12% + (10%) / 2

                                                                       = 12% + 5%

                                                                       = 17%

Cost of common stock = Highest of Alternative 1, Alternative 2 & Alternative 3

                                         = Highest of (18.65%, 17.5% and 17%)

                                        = 18.65%

Answer : Weighted Average cost of capital (WACC) of Company is 15.28% (take a look to the document attached)


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Chun Hei is carrying out a marketing research study. Even after seeking all reasonable available secondary data sources, she has not been able to adequately answer the research questions. In such a situation, Chun Hei must collect ________ data. Multiple Choice cohort syndicated derived primary referential

Answers

Answer:

Primary data

Explanation:

Since the available secondary data are not sufficient for the marketing research study, Chun Hei must collect primary data.

Primary data unlike secondary data are data that were not in existence beforehand. Such a data can not be found in any journals, books, websites or data sites. To get primary data a researcher has to go into the field and they can collect these data through questionnaires, surveys or interviews. Chun Hei will get the information she needs from first hand sources.

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Ending raw materials inventory: 40% of the next quarter’s production requirements.
Ending finished goods inventory: 25% of the next quarter’s expected sales units.
Third-quarter production: 7,740 units.

The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to production and sales that occur in 2020. 5 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $5 per pound.
Prepare a production budget by quarters for the 6-month period ended June 30, 2020

Answers

Answer and Explanation:

The preparation of production budget is shown below:-

                               Carla Vista Company

                               Production budget

                         For 6 months Ending June 31

                                      Quarter 1         Quarter 2      Six months

Expected unit sales      5,500               6,600

Add: Desired ending finished

goods unit                     1,650                1,825

                                (6,600 × 25%)  (7,300 × 25%)

Total required units     7,150                  8,425

Less: beginning finished

goods unit                    1,375                  1,650

                             (5,500 × 25%)    (6,600 × 25%)

Required production

units                              275                     6,775            7,050

Manner, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and20,000 shares of $1 par value common stock outstanding at December 31, 2010. Therewere no dividends declared in 2009. The board of directors declares and pays a $45,000dividend in 2010. What is the amount of dividends received by the common stockholdersin 2010?a. $0b. $25,000c. $45,000d. $20,000

Answers

Answer:

The amount of dividend is $20,000.

Explanation:

Calculate the dividend on common stock using the equation as follows:

Dividend = Dividend Declared - (Number of Preferred shares * parvalue)*5%

=$45,000−(5,000×$100×5%)

=$45,000−$25,000

=$20,000

Consider two markets: the market for coffee and the market for hot cocoa·The initial equilibrium for both markets is the same, the equilibrium price is $4.50, and the equilibrium quantity is 31.0. When the price is $9.75, the quantity supplied of coffee is 73.0 and the quantity supplied of hot cocoa is 101.0. For simplicity of analysis, the demand for both goods is the same. Using the midpoint formula, calculate the elasticity of supply for hot cocoa. Please round to two decimal places Supply in the market for coffee is O a.more elastic than supply in the market for hot cocoa O b. the same elasticity as supply in the market for hot cocoa. c. There is not enough information to tell which has a higher elasticity. d. less elastic than supply in the market for hot cocoa.

Answers

Answer:

The elasticity of supply for hot cocoa is 1.43.

(D) Supply in the market for coffee is less elastic than supply in the market for hot cocoa

Explanation:

Using the midpoint formula,

Elasticity of supply for hot cocoa = (change in quantity supplied/average quantity supplied) ÷ (change in price/average price)

change in quantity supplied = 101 - 31 = 70

average quantity supplied = (101+31)/2 = 66

70/66 = 1.06

change in price = 9.75 - 4.5 = 5.25

average price = (9.75+4.5)/2 = 7.125

5.25/7.125 = 0.74

Elasticity of supply for hot cocoa = 1.06 ÷ 0.74 = 1.43. The supply for hot cocoa is elastic because the elasticity of supply is greater than 1.

Elasticity of supply for coffee = (73 - 31)/(73+31)/2 ÷ 0.74 = 42/52 ÷ 0.74 = 0.81 ÷ 0.74 = 1.09. The supply for coffee is elastic because the elasticity of supply is greater than 1.

However, supply in the market for coffee is less elastic than supply in the market for hot cocoa because the elasticity of supply for coffee is less than that of hot coffee.

onsider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $80,000 or $220,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 5% per year. a. If you require a risk premium of 5%, how much will you be willing to pay for the portfolio

Answers

Answer:

$136,363

Explanation:

For computing the willing amount to pay, first we have to determine the expected cash flow that is shown below:

Expected cash flow is

= $80,000 × 0.5 + $220,000 × 0.5

= $40,000 + $110,000

= $150,000

Now the willing amount is

= Expected cash flow × 1 ÷ (1 + risk free investment + risk premium)

= $150,000 × 1 ÷ (1 + 10%)

= $150,000 × 0.9090

= $136,363

If the signature line on a Patriot Act or customerID form has the escrow officer's name printed on
it on the signature line, however, you as the
signing agent are the one who fills out the ID
form, who should sign the Patriot Act form?

Answers

Since i am the signing agent who fills out the ID form, then, i am at responsibility to sign the Patriot Act form as well.

What is Patriot Act form?

The Patriot Act/customer ID form is a form that help the government to fight the funding of terrorism and money laundering activities.

The Patriot Act/customer ID form is necessitated by the Federal law and its requires all financial institutions to obtain, verify, and record information that identifies every customer.

However, if the signature line on the Patriot Act has escrow officer's name printed on it on the signature line and i am the signing agent who fills out the ID form, then, i am at responsibility to sign the Patriot Act form as well.

Read more about Patriot Act form

brainly.com/question/7472599

Final answer:

The person who fills out the Patriot Act or customer ID forms, in this case the Signing Agent, should be the one to sign the form, even if the escrow officer's name is printed on the signature line.

Explanation:

In the context of processing Patriot Act or customer ID forms, the person who should be signing the form would typically be the individual who completed it, and can attest to the accuracy of the information therein. If you, as the Signing Agent, thoroughly completed the form, then you would sign it, even if the escrow officer's name is pre-printed on the signature line. The pre-printed name would likely indicate which the escrow officer is involved in the transaction, but it does not necessarily indicate who must sign the form. It's important too, however, to always follow your company's policies and any specific instructions given to you related to these forms.

Learn more about Signing Agent here:

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