Dqz telecom is considering a project for the coming year, which will cost $50 million. dqz plans to use the following combination of debt and equity to finance the investment. issue $15 million of 20-year bonds at a price of 101, with a coupon rate of 8 percent, and flotation costs of 2 percent of par. use $35 million of funds generated from (retained) earnings. the equity market is expected to earn 12 percent. u. s. treasury bonds are currently yielding 5 percent. the beta coefficient for dqz is estimated to be 0.60. dqz is subject to an effective corporate income tax rate of 40 percent. assume that the after-tax cost of debt is 7 percent and the cost of equity is 12 percent. determine the weighted average cost of capital.

The sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. the actual price level turns out to be 110. faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. sales from catalogs will

Paar corporation bought 100 percent of kimmel, inc., on january 1, 2012. on that date, paar’s equipment (10-year life) has a book value of $420,000 but a fair value of $520,000. kimmel has equipment (10-year life) with a book value of $272,000 but a fair value of $400,000. paar uses the equity method to record its investment in kimmel. on december 31, 2014, paar has equipment with a book value of $294,000 but a fair value of $445,200. kimmel has equipment with a book value of $190,400 but a fair value of $357,000. the consolidated balance for the equipment account as of december 31, 2014 is $574,000. what would be the impact on consolidated balance for the equipment account as of december 31, 2014 if the parent had applied the initial value method rather than the equity method? the balance in the consolidated equipment account cannot be determined for the initial value method using the information given. the consolidated equipment account would have a higher reported balance. the consolidated equipment account would have a lower reported balance. no effect: the method the parent uses is for internal reporting purposes only and has no impact on consolidated totals.

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