Assume Plainfield Manufacturing has debt of $6,500,000 with a cost of capital of 9.5% and equity of$4,500,000 with a cost of capital of 11.5%. What is Tyler’s weighted average cost of capital?

Rumolt Motors has $58$ million shares outstanding with a share price of $\$ 26$ per share. In addittion, Rumolt has issued bonds with a total current market value of $\$ 991$ million. Suppose Rumolt's equity cost of capital is $14 \%$, and its debt cost of capital is $7 \%$.

a. What is Rumolt's pretax weighted average cost of capital?

b. If Rumolt's corporate tax rate is $30 \%$, what is its after-tax weighted average cost of capital?

Ken Owens Construction specializes in small additions and repairs. His normal charge is $400/day plus materials. Due to his physical condition, David, an elderly gentleman, needs a downstairs room converted to a bathroom. Ken has produced a bid for$5000 to complete the bathroom. He did not provide David with the details of the bid. However, they are shown here

$$\begin{array}{lr} \text{Direct materials}&\$2200\\ \text{Direct labor}&1600\\ \text{Variable overhead}&200\\ \text{Fixed overhead}&600\\ \text{Profit}&400\\ \hline \text{Total}&\$5000\\ \end{array}$$

C. If the town’s social services guaranteed him another job next month at his normal price, could he accept this job at $4000?

With perfect capital markets, as a firm increases its leverage, how does its debt cost of capital change? Its equity cost of capital? Its weighted average cost of capital?

Twice Shy Industries has a debt–equity ratio of 1.5. Its WACC is 8.4%, and its cost of debt is 5.9%. The corporate tax rate is 35%.

a. What is the company’s cost of equity capital?
b. What is the company’s unlevered cost of equity capital?
c. What would the cost of equity be if the debt–equity ratio were 2? What if it were 1.0? What if it were zero?

Classify each of the following performance measures into the balanced scorecard perspective to which it relates: financial perspective, internal operations perspective, learning and growth perspective, or customer perspective. B. Time from packaging to delivery or display

Classify each of the following performance measures into the balanced scorecard perspective to which it relates: financial perspective, internal operations perspective, learning and growth perspective, or customer perspective. E. Divisional profit

For the following item, indicate whether it is most likely reported on the balance sheet (B), the income statement (I), or the statement of stockholders' equity (SE).

Cash (year-end balance) __________

Classify each of the following performance measures into the balanced scorecard perspective to which it relates: financial perspective, internal operations perspective, learning and growth perspective, or customer perspective. F. Number of customer referrals

Sheaves Corp. has a debt−equity ratio of .75. The company is assuming a new plant that will cost $48 million to build. When the company issues new equity, it incurs a flotation cost of 8%. The flotation cost on new debt is 3.5%. What is the initial cost of the plant if the company raises all equity externally? What if it typically uses 60% retained earnings? What if all equity investment is financed through retained earnings?

During the current year, Sokowski Manufacturing earned income of $350,000 from total sales of$5,500,000 and average capital assets of $12,000,000. What is the sales margin?

This problem demonstrates the dramatic efect that consolidation accounting can have on a company’s ratios. Randall Motor Company (Randall) owns 100% of Randall Motor Credit Corporation (RMCC), its financing subsidiary. Randall’s main operations consist of manufacturing automotive products. RMCC mainly helps people finance the purchase of automobiles from Randall and its dealers. The two companies’ individual balance sheets are adapted and summarized as follows (amounts in billions):

$$\begin{array}{lccc} &\textbf{Randall}&\textbf{RMCC}\\ &\textbf{(Parent)}&\textbf{(Subsidiary)}\\ \hline \text{Total assets}&\$80.6&\$164.8\\ \text{Total liabilities}&\$63.9&\$155.4\\ \text{Total stockholders’ equity}&16.7&9.4\\ \text{Total liabilities and equity}&\$80.6&\$164.8\\ \text{}&&\\ \text{}&&\\ \end{array}$$

Assume that RMCC’s liabilities include $1.6 billion owed to Randall, the parent company.

1. Compute the debt ratio of Randall Motor Company considered alone.

2. Determine the consolidated total assets, total liabilities, and stockholders’ equity of Randall Motor Company after consolidating the financial statements of RMCC into the totals of Randall, the parent company.

3. Recompute the debt ratio of the consolidated entity. Why do companies prefer not to consolidate their financing subsidiaries into their own financial statements?

Answer true or false:

The margin of safety is the amount by which sales can decrease before a loss will be incurred.

True or False: The contribution margin lost from a decline in sales is an opportunity cost.