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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 Assignment Ex... on Sun, 2013-08-11 12:47
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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 06:51
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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 Alvin on Wed, 2013-09-18 22:18
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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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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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Answer
Submitted by PROF Kay on Fri, 2014-10-03 17:31
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ANSWER (A+)

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xxxxxx

xxxxxxxxxx
xxxx of Debt
xxxx 6
xxxxxxxx xxxx x xx PVIF xxxxxxx
1-1/1+x^10)/x
xxx x xx PVIF xxxxxxx isxxxxxxxxxxxx10.50%
xxxx xx Equity
xxxxxxxxxxxxxxxxx
xxxx xx xx xxxx xx xxxxxxxx rate xx return
xxxx xxxxxx 10.50%xxxxxx
xxxxxxx 1400000 15.5% 0.10857
xxxxxxx xxxxx

xxxxxx

x

Sheet3

x

file2.docx preview (342 words)

Cost of Equity:-

Cost xx equity xx defined xx xxx return xxxxx stockholders require xx their xxxxxxxxxxxx xx xx the required xxxx of xxxxxx xxx xxx stockholder xxx it xx cost for xxx xxxxxxxx Cost of xxxxxx xxx xx xxxxxxxxxx xx xxx ways. xxxxxxxx xxxxxxxxx model and xxxxxxx Asset xxxxxxx xxxxxx are the ways through which xxxx xx xxxxxx xx calculated.

xxxxxxxx for xxx both xxx xxxxxx are given xxxxxxx

xxxx Model:-

k.e = (Rm-Rf)*beta

Rm = Market xxxxxx

Rf= xxxx xxxx xxxxxx

Reference:

xxxxx xxxxxxx at investopedia. Retrieved from http://www.investopedia.com/terms/c/capm.asp

xxxxxxxx Valuation Model:-

k.e x Dividend xxx share/Current xxxxxx value xx stock x xxxxxx rate xx xxxxxxxxxx

Cost of xxxxxx

Debts xxx the xxxxxxxxx which xxxxxxx takes xx xxxxxxx the xxxxxxx xxxxxxxxx xxxx have to pay interest xx xxxxx xxxxxxxxxx xx the xxxx xx debt is that xxxxxxxx xxxxx company xxx xx xxx xx the borrowings xxx xxxxxxxx xx xx xxxxx xxxxx tax xx xx is the xxx xxxxxxxxxx xxxxxxxx

xxxxxxxxxx

xxxx

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file3.pptx preview (240 words)

Cost of Debt

Cost xx xxxx = Interest Payments

xxxxxxxxxx

xxxxx are xxx borrowing which xxxxxxx xxxxx to finance xxx company therefore they xxxx xx pay xxxxxxxx on those borrowing. So the xxxx xx xxxx is that xxxxxxxx xxxxx company xxx xx xxx xx xxx xxxxxxxxxx and xxxxxxxx it is xxxxx after xxx as xx is the xxx xxxxxxxxxx xxxxxxxxx

Calculations

Cost of xxxx

xxxx

x

Interest rate

x xx xxxx formula

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

The x in PVIF formula xx

6.014773

xxxxxx

xxxx of Equity (CAPM)

xxxx of xxxxxx = (Rm-Rf)*Beta

xxxx xx Equity (Dividend xxxxxxxxx xxxxxx

Cost of xxxxxx = xxxxxxxx per xxxxxxxxxxxxx Market xxxxx of xxxxx x Growth xxxx xx dividends.

xxxxxxxxxx

xxxx xx equity xx xxxxxxx xx xxx xxxxxx xxxxx stockholders xxxxxxx on xxxxx xxxxxxxxxxxx It is xxx required rate xx return for xxx stockholder xxx it xx xxxx for the company. xxxx of xxxxxx xxx xx calculated xx xxx ways. xxxxxxxx valuation model xxx Capital Asset Pricing xxxxxx xxx xxx ways through xxxxx cost of xxxxxx is calculated.

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