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Question
Submitted by Pokes1587 on Tue, 2012-08-21 19:30
due on Sat, 2012-08-25 19:25
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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 Assignment Ex... on Sun, 2013-08-11 08:47
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Cost of xxxxxxxx

Cost xx equity is defined xx xxx return which xxxxxxxxxxxx xxxxxxx xx their xxxxxxxxxxxx It is the xxxxxxxx xxxx xx return xxx the xxxxxxxxxxx but it xx cost xxx xxx xxxxxxxx xxxx xx xxxxxx xxx xx xxxxxxxxxx xx xxx xxxxx Dividend xxxxxxxxx xxxxx xxx Capital Asset xxxxxxx xxxxxx xxx the ways through xxxxx xxxx of equity xx xxxxxxxxxxx

xxxxxxxx for xxx xxxx xxx models xxx xxxxx xxxxxxx

CAPM Model:-

xxx = xxxxxxxxxxxx

xx = Market return

xxx Risk xxxx return

Reference:

CAPM, defined at xxxxxxxxxxxxx xxxxxxxxx from http://www.investopedia.com/terms/c/capm.asp

Dividend xxxxxxxxx xxxxxxx

xxx = Dividend per share/Current Market xxxxx xx stock + Growth xxxx xx xxxxxxxxxx

xxxx of xxxxxx

xxxxx xxx the xxxxxxxxx xxxxx company takes to finance the xxxxxxx xxxxxxxxx xxxx xxxx xx pay xxxxxxxx xx xxxxx xxxxxxxxxx xx the xxxx of xxxx xx xxxx xxxxxxxx which company has xx xxx xx xxx borrowings and xxxxxxxx xx is taken xxxxx xxx as it is the tax deductible expense.

Reference:

Cost

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xxxxxx

xxxxxxxxxxx
xxxx of Debt
xxxx 6
xxxxxxxx xxxx x xx xxxx formula
xxxxxxxxxxxxx
xxx x xx PVIF formula is 6.0147727404 xxxxxx
Cost of Equity
xxxxxxxxxxxx 15.5%
xxxx xx xx used xx required xxxx of return
xxxx60000010.50% 0.0315
xxxxxxx 140000015.5% 0.10857
200000014.0%

Sheet2

x

Sheet3

x


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Answer
Submitted by Kumail Raza on Wed, 2012-08-22 02:51
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Answer file is attached. Feel free to contact for any further assistance.

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Debt and xxxxxx xxxxxxxxx

xxxx xx Debt and Equity

Prepared by xxxxxx xxxx

x

Cost of Debt

Example xx Debt xxxxxxxxxxxxxxx Jones Industries xxxxxxx $600,000 xxx 10 xxxxx xxxx xx annual payment xx xxxxxxxxx What xx xxx xxxxxxxx xxxxxxxx xxxx xxxxx of debt)?

xxxxxxxx xx xxxxxx xxxx

2

xxx an xxxxxxxxxx xx be xxxxxxxxxxx the xxxxxxxx xxxxxx on capital xxxx be xxxxxxx xxxx xxx xxxx of capital. The xxxx of capital xx xxx xxxx xx return that capital xxxxx xx xxxxxxxx xx xxxx in an xxxxxxxxxxx xxxxxxxxxx xx equivalent risk. If a xxxxxxx is of xxxxxxx risk to x company's xxxxxxx xxxxxxxx activities it is xxxxxxxxxx xx use xxx xxxxxxxxx average xxxx of xxxxxxx xx a xxxxx for the xxxxxxxxxxx x xxxxxxxxx securities xxxxxxxxx include both debt xxx xxxxxxx xxx xxxx xxxxxxxxx xxxxxxxxx xxxx xxx

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Answer
Submitted by Good_Morning on Tue, 2014-11-04 16:19
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cost of equity

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xxxx xx xxxxxx

file1.docx preview (342 words)

Cost of Equity:-

Cost xx equity xx defined xx the return xxxxx stockholders xxxxxxx xx their xxxxxxxxxxxx It is the xxxxxxxx xxxx of return xxx xxx stockholder but it is xxxx xxx the company. xxxx of equity can be xxxxxxxxxx xx xxx ways. xxxxxxxx valuation model and xxxxxxx Asset xxxxxxx models are the ways through xxxxx cost xx equity is xxxxxxxxxxx

Formulas for the both the models are xxxxx xxxxxxx

CAPM Model:-

k.e x xxxxxxxxxxxx

xx x Market xxxxxx

Rf= xxxx xxxx return

Reference:

CAPM, xxxxxxx xx investopedia. Retrieved xxxx http://www.investopedia.com/terms/c/capm.asp

xxxxxxxx xxxxxxxxx xxxxxxx

xxx x Dividend per share/Current xxxxxx xxxxx xx stock + xxxxxx xxxx of xxxxxxxxxx

Cost of Debt:-

Debts xxx the borrowing which company xxxxx xx xxxxxxx the xxxxxxx therefore they xxxx xx pay xxxxxxxx on xxxxx xxxxxxxxxx xx the xxxx of xxxx xx xxxx interest which company xxx to xxx on xxx xxxxxxxxxx and normally xx is xxxxx xxxxx tax xx it is xxx tax xxxxxxxxxx expense.

xxxxxxxxxx

xxxx

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file2.xls preview (37 words)

xxxxxx

xxxxxxxxxxxxx
xxxx xx Debt
xxxx 6
xxxxxxxx xxxxx xx PVIF xxxxxxx
1-1/1+x^10)/x
xxx x in PVIF xxxxxxx is 6.0147727404xxxxxx
Cost xx xxxxxx
xxxxxxxxxxxxxxxxx
xxxx xx xx used xx xxxxxxxx rate xx return
xxxx 60000010.50% xxxxxx
Equitgy1400000xxxxx xxxxxxx
2000000 14.0%

xxxxxx

xxxxxx

x

file3.pptx preview (240 words)

xxxx of Debt

xxxx of debt = Interest xxxxxxxx

Definition

Debts xxx the xxxxxxxxx xxxxx xxxxxxx takes to finance xxx company xxxxxxxxx they have xx xxx interest xx xxxxx borrowing. So the xxxx xx debt is xxxx interest which xxxxxxx has xx pay on xxx xxxxxxxxxx and xxxxxxxx it is xxxxx after xxx xx it is xxx xxx deductible expense.

Calculations

Cost xx xxxx

xxxx

x

xxxxxxxx xxxx

x in PVIF formula

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

The x xx PVIF xxxxxxx xx

6.014773

xxxxxx

Cost of xxxxxxxxxxxxx

Cost xx xxxxxx x xxxxxxxxxxxxx

xxxx of xxxxxxxxxxxxxxxx Valuation xxxxxx

xxxx of xxxxxx x xxxxxxxx xxx xxxxxxxxxxxxx Market xxxxx xx xxxxx x xxxxxx xxxx of xxxxxxxxxx

Definition

Cost xx xxxxxx xx defined xx xxx return which xxxxxxxxxxxx require on xxxxx investments. xx is the required xxxx xx return xxx xxx stockholder but it is cost for xxx xxxxxxxx xxxx xx equity can xx xxxxxxxxxx xx xxx ways. Dividend valuation model and Capital xxxxx Pricing models are the ways through which xxxx xx xxxxxx xx xxxxxxxxxxx

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

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xxxx assignment xx xxxxxxxxxxxxxxxx xxx xxxxxxxxxx xx xxxx assignment!

file1.docx preview (329 words)

Cost of xxxxxxxx

xxxx xx equity is xxxxxxx as the xxxxxx which stockholders xxxxxxx xx their xxxxxxxxxxxx It is the xxxxxxxx xxxx xx return xxx the xxxxxxxxxxx but it xx xxxx xxx the company. xxxx of xxxxxx xxx xx calculated in two xxxxx xxxxxxxx valuation model xxx xxxxxxx xxxxx Pricing xxxxxx are the xxxx xxxxxxx xxxxx cost xx equity is calculated.

xxxxxxxx for xxx both xxx xxxxxx are given below:-

CAPM xxxxxxx

k.e x xxxxxxxxxxxx

Rm = Market return

xxx xxxx xxxx return

Reference:

xxxxx xxxxxxx xx xxxxxxxxxxxxx xxxxxxxxx from http://www.investopedia.com/terms/c/capm.asp

xxxxxxxx Valuation xxxxxxx

k.e x Dividend per share/Current xxxxxx value of stock + xxxxxx xxxx of dividends.

xxxx of Debt:-

xxxxx are the borrowing which company takes xx finance the xxxxxxx xxxxxxxxx xxxx have xx xxx xxxxxxxx xx those borrowing. So the cost of debt xx xxxx interest xxxxx xxxxxxx has to xxx xx the xxxxxxxxxx xxx normally xx xx xxxxx after xxx as xx is xxx tax deductible expense.

xxxxxxxxxx

Cost

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file2.xls preview (43 words)

xxxxxx

xxxxxxxxxxxxxxx
Cost of xxxx
xxxx x
xxxxxxxx ratex xx PVIF formula
xxxxxxxxxxxxx
xxx x xx xxxx formula is6.0147727404xxxxxx
Cost of Equity
xxxxxxxxxxxxxxxxx
xxxx xx xx xxxx xx xxxxxxxx xxxx xx xxxxxx
xxxxxxxxxx 10.50%0.0315
xxxxxxx 140000015.5% xxxxxxx
2000000 xxxxx

xxxxxx

xxxxxx

x

file3.pptx preview (242 words)

Cost of Debt

Cost xx debt x xxxxxxxx xxxxxxxx

xxxxxxxxxx

xxxxx xxx xxx xxxxxxxxx xxxxx xxxxxxx xxxxx to xxxxxxx the company therefore xxxx have to pay xxxxxxxx on those xxxxxxxxxx xx the xxxx xx xxxx xx that interest xxxxx xxxxxxx has to xxx xx the borrowings and xxxxxxxx it is xxxxx xxxxx tax as xx is the xxx xxxxxxxxxx xxxxxxxxx

Calculations

Cost of Debt

xxxx

x

Interest xxxx

x xx xxxx formula

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

The x in xxxx formula is

6.014773

10.50%

xxxx xx xxxxxxxxxxxxx

Cost xx xxxxxx x xxxxxxxxxxxxx

xxxx of xxxxxxxxxxxxxxxx xxxxxxxxx Model)

Cost xx Equity = xxxxxxxx per share/Current Market value of stock + xxxxxx rate of dividends.

Definition

xxxx xx equity is defined xx the xxxxxx which xxxxxxxxxxxx xxxxxxx on xxxxx investments. It is the xxxxxxxx xxxx of xxxxxx xxx xxx stockholder but xx is xxxx xxx the xxxxxxxx xxxx of xxxxxx can be xxxxxxxxxx in two ways. Dividend xxxxxxxxx model xxx Capital xxxxx xxxxxxx xxxxxx xxx xxx xxxx xxxxxxx xxxxx cost of xxxxxx xx xxxxxxxxxxx

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