10-25-2011, 06:37 PM
Solution:
This is an Idea solution by Asad Munir pls do not copy paste as it is. Intellectual and positive comments will be appreciated
Question No. 1
Cost of equity = [9 / (80-5)] + .05 = 0.17
Cost of preferred stock = 9/90 = .10
WACC = rD XD. (1-Tax) + rP XP + rE XE .
WACC = .30 x .13 (1-.35) + .30 x .10 + .40 x 0.17
WACC = 0.02535 + .03 + 0.068
WACC = 0.12335
WACC = 12.335
Question No. 2
Break even point in units = Fixed expenses / Unit contribution margin
Break even point in units Firm A = 24600 / (16-6.75) = 2660
Break even point in units Firm B =30600 / (20-9.75) = 2985
This is an Idea solution by Asad Munir pls do not copy paste as it is. Intellectual and positive comments will be appreciated
Question No. 1
Cost of equity = [9 / (80-5)] + .05 = 0.17
Cost of preferred stock = 9/90 = .10
WACC = rD XD. (1-Tax) + rP XP + rE XE .
WACC = .30 x .13 (1-.35) + .30 x .10 + .40 x 0.17
WACC = 0.02535 + .03 + 0.068
WACC = 0.12335
WACC = 12.335
Question No. 2
Break even point in units = Fixed expenses / Unit contribution margin
Break even point in units Firm A = 24600 / (16-6.75) = 2660
Break even point in units Firm B =30600 / (20-9.75) = 2985
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