a)Norton Industries had called upon Ann as they were in need of some advice for how to set a rate for the how much return was needed to run their company. Their balance sheet looks as follows: The tax rate is 20% Fixed Assets £ 1 100 000,00Equity £ 500 000,00 Inventories £ 700 000,00Bonds £ 200 000,00 Accounts receivables £ 500 000,00Long term loans £ 1 200 000,00 Liquid Assets £ 300 000,00Short term loans £ 500 000,00 Creditors £ 200 000,00 Total £ 2 600 000,00 £ 2 600 000,00 Share holders demands a return on equity of 10% and it takes 5% to serve the Bonds. The bank demands 3% for long term loans and 5% for short term loans. What would then be the weighted average cost of capital be? 4 ponts

Given:Tax Rate = 20%Cost of Equity (Re) = 10%Cost of Bonds = 5%Cost of Long-term Loans = 3%Cost of…

Answered: a) Norton Industries had called upon…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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a)	Norton Industries had called upon Ann as they were in need of some advice for how to set a rate for
	the how much return was needed to run their company. Their balance sheet looks as follows:
	The tax rate is 20%

	Fixed Assets	£ 1 100 000,00	Equity	£ 500 000,00
	Inventories	£ 700 000,00	Bonds	£ 200 000,00
	Accounts receivables	£ 500 000,00	Long term loans	£ 1 200 000,00
	Liquid Assets	£ 300 000,00	Short term loans	£ 500 000,00
			Creditors	£ 200 000,00
	Total	£ 2 600 000,00		£ 2 600 000,00

	Share holders demands a return on equity of 10% and it takes 5% to serve the Bonds.
	The bank demands 3% for long term loans and 5% for short term loans. What would then be
	the weighted average cost of capital be? 4 ponts