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Question
Submitted by Pokes1587 on Tue, 2012-08-21 23:30
due on Sat, 2012-08-25 23:25
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The manager of Sensible Essentials conducted an excellent seminar explaining debt and equity financing and how firms should analyze their cost of capital.

The manager of Sensible Essentials conducted an excellent seminar explaining debt and equity financing and how firms should analyze their cost of capital. Nevertheless, the guidelines failed to fully demonstrate the essence of the cost of debt and equity, which is the required rate of return expected by suppliers of funds.

You are the Genesis accountant and have taken a class recently in financing. You agree to prepare a PowerPoint presentation of approximately 6–8 minutes using the examples and information below: 

  1. Debt: Jones Industries borrows $600,000 for 10 years with an annual payment of $100,000. What is the expected interest rate (cost of debt)?
  2. Internal common stock: Jones Industries has a beta of 1.39. The risk-free rate as measured by the rate on short-term US Treasury bill is 3 percent, and the expected return on the overall market is 12 percent. Determine the expected rate of return on Jones’s stock (cost of equity). Here are the details:

    Jones Total Assets

    $2,000,000

    Long- & short-term debt $600,000
    Common internal stock equity $400,000
    New common stock equity $1,000,000
    Total liabilities & equity $2,000,000

Develop a 10–12-slide presentation in PowerPoint format. Perform your calculations in an Excel spreadsheet. Cut and paste the calculation into your presentation. Include speaker’s notes to explain each point in detail. Apply APA standards to citation of sources. Use the following file naming convention: LastnameFirstInitial_M4_A2.ppt.

By Monday, August 20, 2012, deliver your assignment to the M4: Assignment 2 Dropbox.

   

 

 

Answer
Submitted by Alvin on Wed, 2013-09-18 22:20
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Assignment 2 Cost of Debt and Equity(Complete Answer With PowerPoint Presentation)

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Your xxxxxxxxxx is attached..Thanks xxx xxxxxxxxxx my this xxxxxxxxxxx

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Cost xx Equity:-

Cost of xxxxxx xx defined as the return which stockholders require on xxxxx xxxxxxxxxxxx xx is the required xxxx of return xxx xxx stockholder but xx is xxxx for the company. xxxx xx xxxxxx can xx calculated in two ways. xxxxxxxx valuation xxxxx and Capital Asset xxxxxxx models xxx the xxxx xxxxxxx xxxxx cost of xxxxxx xx calculated.

xxxxxxxx for xxx xxxx xxx models xxx given xxxxxxx

xxxx xxxxxxx

k.e x xxxxxxxxxxxx

Rm x Market xxxxxx

xxx xxxx xxxx return

Reference:

CAPM, defined xx investopedia. xxxxxxxxx from xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxx Valuation xxxxxxx

xxx = xxxxxxxx per xxxxxxxxxxxxx xxxxxx value xx xxxxx x Growth rate xx dividends.

xxxx of Debt:-

Debts xxx the borrowing which company takes xx finance xxx company xxxxxxxxx they xxxx to pay xxxxxxxx xx those borrowing. xx xxx cost xx debt is that interest which xxxxxxx xxx to xxx on xxx xxxxxxxxxx and normally it is xxxxx xxxxx tax xx xx xx the tax xxxxxxxxxx expense.

Reference:

Cost

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file2.xls preview (41 words)

xxxxxx

xxxxxxxxxxxxxx
Cost xx xxxx
PVIFx
Interest ratex xx xxxx xxxxxxx
1-1/1+x^10)/x
The x in PVIF formula is6.0147727404xxxxxx
xxxx xx Equity
3+1.39(12-3) 15.5%
xxxx xx xx used xx xxxxxxxx xxxx of return
xxxxxxxxxx10.50% 0.0315
xxxxxxx 1400000 xxxxx 0.10857
2000000 14.0%

Sheet2

xxxxxx

file3.pptx preview (245 words)

Cost of xxxx

Cost of debt = xxxxxxxx xxxxxxxx

xxxxxxxxxx

xxxxx xxx the xxxxxxxxx which xxxxxxx xxxxx to xxxxxxx xxx company xxxxxxxxx xxxx have xx pay xxxxxxxx on xxxxx xxxxxxxxxx So the xxxx of debt is xxxx interest xxxxx xxxxxxx has to pay on xxx borrowings xxx normally xx is taken xxxxx tax xx xx is the xxx deductible xxxxxxxxx

Calculations

xxxx xx Debt

xxxx

6

Interest rate

x xx PVIF xxxxxxx

1-1/1+x^10)/x

The x in xxxx xxxxxxx xx

6.014773

10.50%

xxxx xx Equity (CAPM)

xxxx xx equity x (Rm-Rf)*Beta

Cost xx xxxxxxxxxxxxxxxx xxxxxxxxx xxxxxx

Cost xx xxxxxx = Dividend per share/Current Market xxxxx xx xxxxx x xxxxxx rate of dividends.

xxxxxxxxxx

xxxx xx equity xx xxxxxxx as xxx xxxxxx xxxxx stockholders require xx their investments. xx xx the required xxxx of return xxx the stockholder xxx xx xx xxxx for the company. xxxx of xxxxxx can xx calculated in two xxxxx Dividend xxxxxxxxx model and xxxxxxx Asset Pricing xxxxxx are the ways xxxxxxx which cost xx xxxxxx is calculated.

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Answer
Submitted by Aplustutor on Fri, 2014-04-25 08:05
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Essentials conducted an excellent seminar explaining

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Cost of Debt

xxxx xx xxxx x Interest xxxxxxxx

Definition

Debts xxx xxx xxxxxxxxx xxxxx company takes to xxxxxxx xxx xxxxxxx xxxxxxxxx they xxxx xx xxx interest on those xxxxxxxxxx So xxx xxxx xx debt xx xxxx xxxxxxxx which company xxx to xxx xx xxx borrowings xxx xxxxxxxx it xx xxxxx after tax xx it is xxx xxx deductible xxxxxxxxx

Calculations

xxxx of Debt

xxxx

x

Interest rate

x in PVIF xxxxxxx

xxxxxxxxxxxxx

The x in xxxx xxxxxxx is

6.014773

xxxxxx

xxxx of Equity (CAPM)

xxxx xx equity = (Rm-Rf)*Beta

xxxx of xxxxxxxxxxxxxxxx xxxxxxxxx xxxxxx

xxxx of Equity = Dividend per share/Current xxxxxx xxxxx of stock x Growth xxxx xx dividends.

xxxxxxxxxx

Cost of equity is xxxxxxx xx xxx return which stockholders require xx xxxxx xxxxxxxxxxxx xx is the xxxxxxxx rate of return for xxx stockholder but it xx xxxx xxx xxx xxxxxxxx xxxx of xxxxxx can xx xxxxxxxxxx xx xxx xxxxx xxxxxxxx valuation xxxxx xxx xxxxxxx Asset xxxxxxx xxxxxx xxx the ways through which xxxx of xxxxxx is xxxxxxxxxxx

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file2.xls preview (37 words)

xxxxxx

xxxxxxxxxxxx
xxxx of Debt
PVIF x
xxxxxxxx xxxx x xx xxxx xxxxxxx
xxxxxxxxxxxxx
xxx x xx xxxx xxxxxxx is6.0147727404xxxxxx
Cost of xxxxxx
3+1.39(12-3)15.5%
WACC to be used xx xxxxxxxx xxxx xx xxxxxx
Debtxxxxxxxxxxxx0.0315
xxxxxxx 140000015.5%0.10857
2000000 xxxxx

Sheet2

Sheet3

file3.docx preview (342 words)

Cost of Equity:-

Cost of xxxxxx xx defined xx the return xxxxx stockholders xxxxxxx on xxxxx investments. xx is the required xxxx xx xxxxxx for xxx xxxxxxxxxxx but xx xx xxxx for the company. Cost of equity can xx calculated xx xxx xxxxx xxxxxxxx xxxxxxxxx model xxx Capital xxxxx xxxxxxx models xxx xxx xxxx xxxxxxx xxxxx cost of equity is xxxxxxxxxxx

Formulas xxx xxx both xxx models xxx given xxxxxxx

xxxx xxxxxxx

k.e x (Rm-Rf)*beta

Rm x xxxxxx return

xxx xxxx free xxxxxx

Reference:

CAPM, defined at xxxxxxxxxxxx. Retrieved xxxx http://www.investopedia.com/terms/c/capm.asp

xxxxxxxx xxxxxxxxx Model:-

xxx = xxxxxxxx xxx share/Current Market value xx xxxxx x Growth xxxx xx xxxxxxxxxx

xxxx xx xxxxxx

Debts xxx xxx borrowing xxxxx company xxxxx to xxxxxxx xxx xxxxxxx therefore they xxxx to xxx interest xx those xxxxxxxxxx xx the cost xx debt is xxxx interest which xxxxxxx xxx to pay xx xxx borrowings xxx xxxxxxxx it is xxxxx xxxxx tax xx xx xx xxx xxx deductible xxxxxxxx

xxxxxxxxxx

Cost

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Answer
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Sheet1

xxxxxxxxxxxxxxxxxxxx
xxxxxxxxx
Calculating cost xx Debt
xx x xxxxxx
Pmt x 100000
xxxxxxxx rate x 16.67%
xxxxxxxxxxx xxxx of equity
Using xxxx xxxxx
xxxx1.39
xxxx xxxx rate xxx
Expected xxxxxx =xxx
Using CAPM xxxxx
xxxx xx equity xRisk free rate x Beta * xxxxxxxxx xxxxxx - xxxx xxxx rate)
x 3%+1.39*(12%-3%)
x 15.51%
Using xxxxx
xxxxx xxxxx Assets $2,000,000
Long- & xxxxxxxxxx debtxxxxxxxx
xxxxxx internal xxxxx equity$400,000
xxx xxxxxx xxxxx equity xxxxxxxxxx
xxxxx liabilities & xxxxxx xxxxxxxxxx
Total xxxx xxxxxxxxxxxx
Total equity x$1,400,000.00
xxxxx$2,000,000.00
xxxxxxxxxxx xxxxxxx
Debtxxxxxx
Equity xxxxxx
xxxx x 15.86%

Sheet2

Sheet3


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Answer
Submitted by xoon on Tue, 2014-01-28 16:19
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Sheet1

xxxxxxxxxxxxxxxxxxxxxxxx
Solution:
Calculating cost xx Debt
PV x600000
Pmt = xxxxxx
xxxxxxxx rate = 16.67%
Calculating xxxx of xxxxxx
Using CAPM xxxxx
Beta xxxx
xxxx xxxx rate =3%
xxxxxxxx return =12%
xxxxx xxxx xxxxx
xxxx xx xxxxxx xxxxx xxxx rate x Beta * xxxxxxxxx xxxxxx x xxxx xxxx rate)
= xxxxxxxxxxxxxxxx
=xxxxxx
xxxxx xxxxx
xxxxx xxxxx xxxxxxxxxxxxxxxx
Long- & short-term debtxxxxxxxx
xxxxxx xxxxxxxx xxxxx xxxxxx $400,000
New xxxxxx xxxxx equity$1,000,000
Total xxxxxxxxxxx & xxxxxxxxxxxxxxxx
Total Debt = xxxxxxxxxxx
Total xxxxxx = xxxxxxxxxxxxx
xxxxx xxxxxxxxxxxxx
xxxxxxxxxxx xxxxxxx
Debtxxxxxx
xxxxxxxxxxxx
xxxx x 15.86%

Sheet2

Sheet3


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Answer
Submitted by Assignment Ex... on Sun, 2013-08-11 12:45
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Cost of Equity:-

Cost xx xxxxxx is defined xx xxx return xxxxx stockholders require xx xxxxx investments. xx is xxx xxxxxxxx xxxx of return xxx xxx xxxxxxxxxxx xxx xx is cost xxx xxx company. xxxx of xxxxxx can be xxxxxxxxxx xx xxx xxxxx Dividend xxxxxxxxx model xxx Capital xxxxx Pricing xxxxxx xxx xxx xxxx through xxxxx xxxx xx equity xx xxxxxxxxxxx

xxxxxxxx xxx the both the xxxxxx xxx given below:-

xxxx Model:-

xxx = xxxxxxxxxxxx

xx x Market xxxxxx

xxx xxxx xxxx return

xxxxxxxxxx

xxxxx defined at investopedia. xxxxxxxxx from http://www.investopedia.com/terms/c/capm.asp

Dividend xxxxxxxxx xxxxxxx

k.e x Dividend per share/Current xxxxxx value xx stock + Growth rate xx xxxxxxxxxx

Cost of Debt:-

xxxxx xxx the borrowing which company xxxxx xx xxxxxxx xxx xxxxxxx therefore they have xx pay xxxxxxxx on xxxxx xxxxxxxxxx So the xxxx of xxxx is that xxxxxxxx which xxxxxxx xxx xx xxx xx xxx xxxxxxxxxx and normally it is taken after tax as xx is xxx tax deductible expense.

xxxxxxxxxx

xxxx

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Sheet1

xxxxxxxxxxxx
Cost xx Debt
PVIF6
xxxxxxxx xxxx x in PVIF formula
1-1/1+x^10)/x
xxx x in PVIF formula xx6.014772740410.50%
Cost xx Equity
xxxxxxxxxxxx xxxxx
WACC xx xx used xx required xxxx xx return
Debt600000 xxxxxx0.0315
xxxxxxx 1400000 xxxxx 0.10857
2000000 xxxxx

Sheet2

x

Sheet3

x


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Answer
Submitted by Kumail Raza on Thu, 2012-08-23 10:07
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Answer
Submitted by Kumail Raza on Wed, 2012-08-22 06:50
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Answer file is attached. Feel free to contact for any further assistance.

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Debt xxx Equity Financing

Cost xx xxxx and Equity

Prepared xx xxxxxx xxxx

1

xxxx xx xxxx

xxxxxxx of Debt xxxxxxxxxxxxxxx Jones xxxxxxxxxx borrows $600,000 for xx years with xx annual xxxxxxx xx xxxxxxxxx xxxx xx xxx expected interest xxxx xxxxx xx debt)?

xxxxxxxx by Kumail Raza

2

xxx xx xxxxxxxxxx to be worthwhile, xxx expected return xx xxxxxxx must be greater than xxx xxxx of xxxxxxxx The cost xx xxxxxxx is xxx rate xx return that capital could be xxxxxxxx xx xxxx xx xx alternative investment of equivalent xxxxx xx a xxxxxxx xx of xxxxxxx xxxx to a company's average xxxxxxxx activities xx is xxxxxxxxxx to use the xxxxxxxxx xxxxxxx cost of xxxxxxx as a basis for the evaluation. A xxxxxxxxx xxxxxxxxxx typically include xxxx xxxx and equity, xxx must therefore xxxxxxxxx both the

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Answer
Submitted by shahimermaid on Wed, 2012-08-22 13:18
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the answer is attached along with excel file

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xxx Cost xx xxxxxxx

Sensible xxxxxxxxxx

Types xx xxxxxxxxx xxxxxxx that firms xxx

The xxxxxxxxx xxxxxxxx

xxx xxxx needs xxxxxxx to invest xx xxx xxxxxxx They xxx xx xxx xxxxxx Current xxxxxx and the xxxxx assets. xxxxxxx xxxxxx xxx xxxx in xx year and fixed xxxxxx xxxxxxx land, machinery, xxxxxxxxx xxxx xxxxxx for xxxx xxxx xxxx the company. xxx xxxxxxx xxx to xxxxx the financing xxxx the investment decisions. The current xxxxxx should be xxxxxxxx from xxxxxxx xxxxxxxxxxx & xxxxx assets xxxxxx xx financed xxxx the xxxx xxxx capital. There xxx xxxxxxx two xxxxxxxxxx xx xxxx term capital: xxxx and xxxxxxxxxxxx xx xxxx xx xxxxxxxx xxxx xxxxx xxx has xx be xxxxxxxx xxxxx xxxx Interest Equity xx xxx xxxxxxxxxx xx xxx xxxxxxxxxxxx xxxx remains xxx xxxx term xxx xxxx are rewarded by

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