Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing parts is ​, which includes fixed costs of and variable costs of . The company can buy the part from an outside supplier for per​ unit, and avoid​ 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for ​$ profit. If Harvey Automobiles makes the​ part, what will its operating income​ be?

Answers

Answer 1

Answer:

$26000 greater than if the company bought the part

Explanation:

The computation of the operating income in case of the making part is shown below:

In making 40,000 parts

The relevant cost is $60,000

In the case when the product is buyed from outsider

Purchase costs   ($3 × 40,000)   $120,000

Less - avoidable fixed cost ($70,000 × 30%)  ($21,000

Less; profit from the sale of another product ($13,000 )

Relevant cost to buy  $86,000

Now the difference of cost is

= $86,000 - $60,000

= $26,000


Related Questions

Accrual basis accounting recognizes ___ (equity/revenues/expenses) when the service or product is delivered and records ___ (revenues/expenses/liabilities) when ___ (incurred/paid) in order to adhere to the matching principle.

Answers

Answer: revenues ; expenses ; incurred

Explanation: Accrual basis of accounting from the english word 'accrue' means accumulation or gathering over a certain period of time. Hence, when investments, purchases are gathered or compiled over a certain time period.

In other to adhere to the matching principle under accrual basis of accounting :

Revenues should be recorded once the service or product is earned or delivered and not until when cash is paid. Expenses are recorded correspondingly irrespective of when the cash is paid out. Therefore, in accrual accounting, once obligation or expenses is incurred, expenses is recorded.

Adrianna Company purchases 35% of Saddle Company's outstanding stock for $450,000. At the time of acquisition, book value of the company's net assets is $1 million and the fair value of the company's net assets is $1.2 million. The difference between the book value and fair value of the net assets is attributed to undervalued land. Adrianna should

Answers

Answer:

The investment must be recorded using the equity method:

Dr Investment in Saddle company 450,000

    Cr Cash 450,000

Even though the difference between historic cost and fair market value of the land is very significant, Adriana company cannot make any adjustments or amortizations to the investment account because land is a non-depreciable asset that must always be recorded at purchase cost. Any gain or loss can only be calculated after the land is sold, but meantime no adjustment is necessary.

A company wants to product a weighted moving average forecast for April with the weights 0.40, 0.35, and 0.25 assigned to March, February, and January, respectively. If the company had demands of 5,000 in January, 4,750 in February, and 5,200 in March, then April's forecast would be

Answers

Answer:

4,992.50

Explanation:

The computation of the April forecast is shown below:-

April forecast = ((Weight of March × Demand of march) + (Weight of Feb × demand of Feb) + (Weight of Jan × Demand of Jan)] ÷ Total of weights

= (0.40 × 5,200 + 0.35 × 4,750 + 0.25 × 5,000)

= 4,992.50

Hence, the correct answer is 4,992.50 and we have applied the above formula.

Using the following balance sheet and income statement data, what is the debt to assets ratio? Current assets $14,000 Net income $ 21,000 Current liabilities 8,000 Stockholder's Equity 39,000 Average assets 80,000 Total liabilities 21,000 Total assets 60,000 Average common shares outstanding was 10,000.

Answers

Answer:

35%

Explanation:

The following information were derived from a balance sheet and income statement data

Current assets is $14,000

Net income is $21,000

Current liabilities is 8,000

Stock holders equity is 39,000

Average assets is 80,000

Total liabilities is 21,000

Total assets is 60,000

Therefore, the debt to assets ratio can be calculated as follows

= Total liabilities/Total assets

= 21,000/60,000

= 0.35×100

= 35%

Hence the debt to assets ratio is 35%

Ursula buys a Verismooth boat from a Watercraft store, which agrees to keep the boat for Ursula until she picks it up. Before Ursula gets the boat, an unforeseen tornado destroys the store and the boat. The loss of the boat is suffered by

Answers

Answer:

Watercraft store

Explanation:

In a situation such as this one, the loss of the boat is ultimately suffered by the Watercraft store. This is mainly due to the fact that they agreed to keep the boat for Ursula until she picks it up, which in doing so they ultimately agreed to take responsibility for the boat during that time. Therefore, any and all damages that have occurred to the boat are suffered by Watercraft and Ursula can sue them for a full refund of the boat.

When sales are made in a local Walmart, the sales data is sent to Walmart headquarters where the data are used to build a picture of the buying habits of people who shop at individual Walmarts across the nation. The use of ________ makes this possible.

Answers

The question is incomplete:

When sales are made in a local Walmart, the sales data is sent to Walmart headquarters where the data are used to build a picture of the buying habits of people who shop at individual Walmarts across the nation. The use of ________ makes this possible.

A) POS systems

B) social shopping

C) e-commerce

D) e-menus

E) direct selling

Answer:

A) POS systems

Explanation:

-POS System refers to the equipment and software that retailers use in their stores to register the sales. This system has the information about the sales, the inventories and CRM.

-Social shopping is a method that is used for online shopping that tries to involve friends in the purchasing experience.

-E-commerce  refers to purchasing and selling goods online.

-E-menus is a system used by restaurants that allows to order food through an electronic device.

-Direct selling refers to selling directly to consumers without using intermediaries.

According to this, the answer is that the use of POS systems makes this possible because these systems have the information from stores like sales and inventory that allows to analize people's buying habits.

An investor purchases a stock for $52 and a put for $0.60 with a strike price of $50. The investor sells a call for $0.60 with a strike price of $58. What is the maximum profit and loss for this position

Answers

Answer:

Maximum profit = $6

Maximum loss = -$2

Explanation:

The computation of maximum profit and loss for this position is shown below:-

Maximum profit = Strike price - Purchase of stock

= $58 - $52

= $6

Maximum loss = Strike price - Purchase of stock

= $50 - $52

= - $2

Therefore for determining the maximum profit and loss for this position we simply applied the above formulas.

PLEASE HELP!! 50 POINTS!!

Answers

Hi there! Hopefully this helps! Let me know if you need additional information!

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Country that is the largest importer of goods: USA.

Country that is the largest exporter of goods: USA.

Number of US jobs supported by exports: In 2016, exports of goods and services supported an estimated 10.7 million U.S. jobs.

Amount of money the United States exchanges because of trade: U.S. goods and services trade totaled $5.3 trillion (In 2017).

Approximate percentage of US export-related manufacturing jobs: In 2014, we find that as a group manufacturing industries have the highest share, 26 percent, of their employment supported by exports.

Approximate additional percentage earned by workers in export related factories: It estimates that exports contribute an additional 18 percent to workers’ earnings on average in the U.S. manufacturing sector.

One way trade helps US businesses and workers: By supporting more productive, higher paying jobs in our export sectors.

Another way trade helps US businesses and workers: By expanding the variety of products for purchase by consumers and business.

A third way trade helps US businesses and workers: By encouraging investment and more rapid economic growth.

Answer:

Country that is the largest importer of goods: USA.

Country that is the largest exporter of goods: USA.

Number of US jobs supported by exports: In 2016, exports of goods and services supported an estimated 10.7 million U.S. jobs.

Amount of money the United States exchanges because of trade: U.S. goods and services trade totaled $5.3 trillion (In 2017).

Approximate percentage of US export-related manufacturing jobs: In 2014, we find that as a group manufacturing industries have the highest share, 26 percent, of their employment supported by exports.  

Approximate additional percentage earned by workers in export related factories: It estimates that exports contribute an additional 18 percent to workers’ earnings on average in the U.S. manufacturing sector.

One way trade helps US businesses and workers: By supporting more productive, higher paying jobs in our export sectors.

Another way trade helps US businesses and workers: By expanding the variety of products for purchase by consumers and business.

A third way trade helps US businesses and workers: By encouraging investment and more rapid economic growth.

Jill is starting a fast food delivery company. She has designed a logo and plans to print flyers to advertise her services. Jill plans to publish a book based on her experiences to inspire young entrepreneurs. To help protect her publishing rights, she should register a ____.

Answers

Answer:

Copyright

Explanation:

Copyright refers to creating a record of your work that proves that you are the owner and because of that, you are the only one allowed to make copies of it and it protects against an unauthorized use. According to this, the answer is that to help protect her publishing rights, she should register a copyright because this will allow her to have a record of this and avoid plagiarism.


A man is running on the straightroad with the uniform velocity of 3m/s. Calculate acceleration produced by him.

Answers

Answer:

acceleration =0 m/s^2

Explanation:

Acceleration is defined as the rate of change in velocity. If there’s no change in velocity, then the rate of change is zero, hence the acceleration is zero. The question says the man is running at a uniform velocity (i.e. he’s running at a steady speed in a fixed direction). This means his velocity is constant, or unchanging. Hence, his acceleration is zero.

Obviously everything I said in the above paragraph only concerns his horizontal velocity. To get even more specific, it only concerns the horizontal velocity of his centre of mass. Vertically, he is of course experiencing upward and downward downward acceleration due to how his feet push against the floor as he runs. And his limbs accelerate and decelerate as well, to allow him to run.

But looking at the man’s horizontal motion as a whole, and thinking of his motion as being entirely represented by his centre of mass, his acceleration is 0.

Q 8.38: The financial statements of the Robertson Company report net sales of $400,000 and accounts receivable of $40,000 and $20,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Robertson

Answers

Answer:

13.33 times

Explanation:

The computation of the accounts receivable turnover ratio is given below:  

Account receivable turnover ratio = Net credit sales ÷ Average accounts receivable  

where,  

Net credit sales is $400,000

And, the Average accounts receivable would be  

= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2  

= ($40,000 + $20,000) ÷ 2  

= $30,000

So, the account receivable turnover ratio is

= $400,000 ÷ 30,000

= 13.33 times

The Federal Deposit Insurance Corporation: Question 7 options: a) has eliminated bank failures. b) insures all demand deposits without limit. c) insures all demand deposits up to $100,000. d) includes commercial banks and state-chartered banks as its members.

Answers

Answer:

D

Explanation:

The federal deposit Insurance Corporation is an independent federal agencies that insures deposit in banks against any bank failures. It includes commercial banks and state chartered banks as its members.

In order to ensure that bank failures are prevented , the FDIC monitors the operational safety and effectiveness of members bank . This insurance is limited to $250,000 per depositor per bank and it covers only the depository account like the checks and savings account.

When computing diluted earnings per share, how are convertible bonds treated? A. ignored B. assumed converted whether they are dilutive or antidilutive C. assumed converted only if they are antidilutive D. assumed converted only if they are dilutive

Answers

Answer: assumed converted only if they are dilutive.

Explanation:

Diluted Earnings per Share is a calculation that is used to determine the quality of the earnings per share if a company when all the convertible securities are taken into consideration.

It should be noted that convertible securities are the outstanding stock options, convertible preferred shares, warrants and convertible debentures. During computation, the convertible bonds will be treated to be assumed converted only if they are dilutive.

Loren has a $200 annual (calendar year) deductible on her health insurance plan. By the end of 2018, she had paid $175 in medical expenses. On January 4, 2019 she went to the doctor for the first time that year and was charged $60 for an office visit. How much of that must she pay for herself

Answers

Answer:

$60

Explanation:

Based on the information given about Loren the amount that she must pay herself will be $60 reason been that the amount of $175 she paid for her medical expenses at the end of 2018 was based on her health insurance plan, while the $60 was the amount of money she paid her self or the amount she was charge her for visiting the doctor for the first time on January 4, 2019.

Generally, deductibles are calculated on a calendar year basis. This means that, excluding copays, coinsurance, and non-covered charges, your health care bills must surpass your deductible between January and December for the insurance provider to begin paying.

Based on the information given about Loren the amount that she must pay herself will be $60 reason been that the amount of $175 she paid for her medical expenses at the end of 2018 was based on her health insurance plan, while the $60 was the amount of money she paid her self or the amount she was charge her for visiting the doctor for the first time on January 4, 2019.

To know more about health insurance plan, refer to the link:

https://brainly.com/question/1577165

You're in the lunchroom at work one day, 3 weeks into the execution of a project you are managing, and your project sponsor approaches you to see if you can squeeze in another feature on his project. This is an example of...

Answers

Answer:

scope creep

Explanation:

Scope creep refers to the managing of the project with respect to the changes made in the scope of the project after starting of a project. it can arise when the scope of the project is not defined clearly that result in harmful

Therefore as per the situation, the project sponsor reached you with a motive whether you compressed another attribute in the project

So this example represent the scope creep

Thompson Company had $1,000 in office supplies at the beginning of the fiscal year. At the end of the fiscal year, Thompson Company did an inventory of the office supplies and determined that $300 of supplies remained in the supply room unused. What is the amount of Supplies Expense at the end of the fiscal year?

Answers

Answer: Amount of supplies expense = $700

Explanation:

Given the following :

Amount of supplies at the beginning of the year = $1000

Amount of supplies which remained unused = $300

Amount of supplies expense at the end of the fiscal year = Amount of used supplies

Amount of used supplies = (amount of supplies at beginning - amount of unused supplies)

Amount of used supplies = ($1000 - $300)

Amount of used supplies = $700

Therefore, amount of supplies expense = $700

In January, Stitch, Inc. adopted the dollar-value LIFO method of inventory valuation. At adoption, inventory was valued at $50,000. During the year, inventory increased $30,000 using base-year prices, and prices increased 10%. The designated market value of Stitch's inventory exceeded its cost at year end. What amount of inventory should Stitch report in its year-end balance sheet

Answers

Answer:

$83,000

Explanation:

Calculation of the amount of inventory that Stitch should report in its year-end balance sheet

First step is to calculate for the 10% price increase

Increase price = ( $30,000 x 10% ) =$3,000

Second step is to add up the price increase to the amount of increase in inventory

$30,000 + $3,000 =$33,000

Hence, $33,000 will now be the increased in price inventory

Last step is to calculate for the amount of inventory that Stitch should report in its year-end balance sheet

Using this formula

Inventory to be reported = Valued of the Adoption inventory + Increase price Inventory

Where,

Adoption inventory value= $50,000

Increase price Inventory=$33,000

Let plug in the formula

Inventory to be reported = $50,000 + $33,000

Inventory to be reported =$83,000

Therefore the amount of inventory that Stitch should report in its year-end balance sheet will be $83,000

Welch Corporation​'s trial balance shows $ 158,000 face value of bonds with a discount balance of $ 1,800. The bonds mature in 10 years. How will the bonds be presented on the balance​ sheet?

Answers

Answer:

The bonds be presented on the balance​ sheet at discount balance of $ 1,800.

Explanation:

The discount balance is the Present Value of Future Cash Inflows.

The Present Value is shown instead of Face Value as the Value Carried by the bonds and subsequently, this value is adjusted over the 10 year period with interest applied on bonds to reach the face value of  $ 158,000.

Jack,an HR manager at an electronics firm,has been informed that he needs to hire twenty technicians immediately.Which of the following would most likely be the best method for quickly attracting experienced technicians?
A) job fair
B) event recruiting
C) radio advertisement
D) newspaper advertisement

Answers

Answer: Radio advertisement

Explanation:

From the question, we are informed that Jack,an HR manager at an electronics firm, has been informed that he needs to hire twenty technicians immediately.

The best method to get quality technicians will be through advertising on radio. Through this method, a larger number of people will be reached and radio advertisement is usually effective.

shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market

Answers

Answer:

7% and 135

Explanation:

The computation of the equilibrium interest rate and the quantity is shown below:

As we can see in the attached figure that at the interest rate of 7% the Qd is equivalent to Qs i.e 140

And when it the interest rate is 8% the quantity of lending is 145 and the quantity of borrowing is 135 that decreased the quantity of lending by 140 to 135 so we considered the 135

Recall on February 1, Derrick Company established a $200 petty cash fund. On February 15, when the fund balance reached $7, the petty cash custodian prepared a petty cash report that summarized receipts for postage ($140) and printing ($54). Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

Answers

Answer with its Explanation:

The double entry to record the postage expenses of $140 and the printing expense of $54 is as under:

Dr Postage Expenses        $140

Dr Printing Expenses         $54

Cr Petty Cash Account                       $193

Cr Cash Over and Short Account      $1

According to the summarized Report, the cash at hand is $7 which must be $6 ($200 - $194). This difference can adjusted in Cash Over and Short Account which is used to adjust minor differences in cash balance.

Kindly don't forget to rate my answer.

Agencies of redistribution a. comprise the welfare, fiscal, and monetary agencies responsible for transferring hundreds of billions of dollars annually. b. focus in part on banks, credit, and currency, but avoid taxing and spending activities. c. are exemplified in the Federal Reserve System, the Treasury Department, and the Social Security Administration. d. are responsible for the regulation of economic and social affairs.

Answers

Answer:

a. comprise the welfare, fiscal, and monetary agencies responsible for transferring hundreds of billions of dollars annually.

Explanation:

Agencies of redistribution comprise the welfare, fiscal, and monetary agencies responsible for transferring hundreds of billions of dollars annually.

Examples of the agencies of redistribution in the United States of America are the Social Security Administration and Federal Reserve System is saddled with one responsibility such as promoting the citizen's well-being.

Suppose you know a company's stock currently sells for $90 per share and the required return on the stock is 8 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

Answers

Answer: $3.46

Explanation:

Given the following :

Current share price (P0) = $90 per share

Required return on stock= 8%

total return on the stock is evenly divided between a capital gains yield and a dividend yield ;

Therefore, Required return on stock= 8% ;

4% capital gain yield + 4% Dividend yield = 8%

Growth rate = 4% = 4/ 100 = 0.04

D1 = D0(1 + g)

D1 = value of next year's Dividend

D0 = current Dividend yield

g = Constant growth rate

D1 = current stock price * g

D1 = 90 * 0.04 = 3.6

D1 = D0(1 + g)

D0 = D1 / (1+g)

D0 = 3.6 / (1+ 0.04)

D0 = 3.6 / 1.04

D0 = $3.46

Community activist: If Morganville wants to keep its central shopping district healthy, it should prevent the opening of a huge SaveAll discount department store on the outskirts of Morganville. Records from other small towns show that whenever SaveAll has opened a store outside the central shopping district of a small town, within five years the town has experienced the bankruptcies of more than a quarter of the stores in the shopping district.
The answer to which of the following would be most useful for evaluating the community activist’s reasoning?
(A) Have community activists in other towns successfully campaigned against the opening of a SaveAll store on the outskirts of their towns?
(B) Do a large percentage of the residents of Morganville currently do almost all of their shopping at stores in Morganville?
(C) In towns with healthy central shopping districts, what proportion of the stores in those districts suffer bankruptcy during a typical five-year period?
(D) What proportion of the employees at the SaveAll store on the outskirts of Morganville will be drawn form Morganville?
(E) Do newly opened SaveAll stores ever lose money during their first five years of operation?

Answers

Answer: The best answer is C

Explanation:

C. In towns with healthy central shopping districts, what proportion of the stores in those districts suffer bankruptcy during a typical five-year period?

Supposing that roughly a quarter of stores in a HEALTHY central shopping district is being found out to have suffered bankruptcy during a typical five-year period. This would be an evidence to say that losing a quarter of the stores to bankruptcy is NOT a sign that a shopping district is "unhealthy". In that regards, the records from the other towns would simply show that, DESPITE having a SaveAll, the shopping districts maintained healthy bankruptcy rates.

So, the fact that a quarter of stores in Morganville's central shopping district will likely experience bankruptcy is no cause for alarm. This is what we would expect in ANY healthy central shopping district. Therefore, based on the evidence, there is no reason to expect that opening a Save All will negatively affect the health of the central shopping district.

The capable project manager understands what motivates team members and creates a competitive environment in which individuals compete as part of a high-performing team and are required to excel.
a) true
b) false

Answers

Answer:

False.

Explanation:

The capable project manager understands what motivates team members and creates a competitive environment in which each individuals are impacted by the learning process and experiences as part of a high-performing team and are able to excel.

Ideally, a capable project manager should use the project work or activities as an opportunity to avail the team members with more knowledge, so that each of them becomes more experienced and competent than when they started.

Also, a project manager is a professional saddled with the responsibility of successfully planning, analyzing and execution of a project in an organization.

After much discussion, Chad finally agrees to go to the opera with his wife. As they are finding their seats he says, sarcastically, "Yeah, this is going to be a lot of fun* This is an example of which conflict style?
a. avoidance
b. assertion
c. compromise
d. direct aggression
e. passive aggression

Answers

Answer:

e. Passive aggression

Explanation:

Passive aggressive behaviors can be defined as a type of behaviour which a person or an individual exhibit , which makes such person to express their negative feelings through their actions or by being indirectly aggressive instead of handling their feelings directly which is why a person or an individual with this type of behaviour often have resistance to requests by acting stubborn reason been that such person may feel angry or frustrated and act neutral, and then find an indirect ways to show how they really feel instead of communicating directly.

Secondly a person which PASSIVE AGGRESSIVE BEHAVIOUR will often posses this type of trait such as Trying to play the victim when issue arise, making excuses, blaming others for their action, hiding their anger, Trying to avoid direct communication just as in the case of Chad.

Therefore based on the information given about Chad,This is an example of PASSIVE AGGRESSION conflict style.

​Jacko Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Kriner Co. is a U.S.-based MNC that has the same exposure as Jacko Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk?

Answers

Answer: Kriner Co.

Explanation:

An exchange rate is when the value of the currency of a country is compared with the currency of another country.

From the question, we are informed that ​Jacko Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs and that these two currencies are highly negatively correlated in their movements against the dollar.

We are further told that Kriner Co. is a U.S.-based MNC that has the same exposure as Jacko Co. in these currencies, except that its Sunland francs represent cash outflows.

Based on the information, the firm that has a high exposure to exchange rate risk is Kriner Co.

Answer:

yea

Explanation:

it's b

Nola and Charles both own party planning firms in the small town of Trident, IA. Because they are the only party planners in town, they want to collude to make the price of party planning high. Classify the scenarios according to whether they are more likely to help or impede Nola and Charles colluding.
Helps collusion Impedes collusion
1. Charles develops a signature appetizer that becomes the must have in Trident
2. A party planning school opens and the new graduates are ready to plan!
3. Nola lowers her price on national television
4. Nola and Charles are regulars at the same coffee house. They talk regularly
5. Charles and Nola both charge a fixed per person price for a party
6. Nola's marginal cost is lower than Charles's.
7. Most of the parties are given by Trident's largest employer, a water bottling plant

Answers

Answer:

Nola and Charles Collusion at Trident, IA.

Helping or Impeding Scenarios:

Helping Scenarios:

4. Nola and Charles are regulars at the same coffee house. They talk regularly

5. Charles and Nola both charge a fixed per person price for a party

Impeding Scenarios:

1. Charles develops a signature appetizer that becomes the must have in Trident

2. A party planning school opens and the new graduates are ready to plan!

3. Nola lowers her price on national television

6. Nola's marginal cost is lower than Charles's.

7. Most of the parties are given by Trident's largest employer, a water bottling plant.

Explanation:

Nola and Charles can only enter a collusion agreement secretly because it is illegal.  Since the agreement is secret, it is not enforceable in the court of law.  The tendency for Nola and Charles to be entangled in the prisoner's dilemma is very high.  It is also not possible for them to protect their collusion for very long because they have different cost bases and core competencies that derail collusion on a sustainable large scale.  Graduates of party organization and other market participants, including the large firm that hosts most of the parties in the area will end the collusion before long.

Which of the five Rs of good governance in sport refers to systems that report organizational governance structures, constitutions, legal control mechanisms, event selection criteria, and codes of eligibility, conduct, and ethics?

Answers

Answer: Regulations

Explanation: Regulations as related to good governance in sports encompasses the structural and most of the non-technical requirements and injunctions required to maintain a good organizational structure. It may be explained as a management skeleton or framework which is very paramount in the orderly control and Maintainace of any organized body. The legal processes and procedures, ethical standards, code of conduct. The other R's include rules, ranking, records and result.

Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 6%. Estimate the firm’s cost of internal equity.

Answers

Answer: 12.5%

Explanation:

Given the following :

Beta (B) = 1.3

Marginal tax rate = 34%

Risk free interest rate = 6%

Market rate of return = 11%

The cost of equity is calculated using the relation:

Risk free rate of return + Beta(market rate of return - risk free rate of return)

Cost of equity = 6% + 1.3(11% - 6%)

Cost of equity = 6% + 1.3(5%)

Cost of equity = 6% + 6.5%

Cost of equity = 12.5%

Therefore, the firm's cost of internal equity is 12.5%

Other Questions
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