Compare Amazon Lite with Mutual Insurance using the following balance sheet information and calculate their WACC....

50.1K

Verified Solution

Question

Finance

Compare Amazon Lite with Mutual Insurance using the followingbalance sheet information and calculate their WACC. Amazon CurrentAssets $2,000,000 Current Liabilities $1,000,000 Fixed Assets$7,000,000 Long-term Liabilities $5,000,000 Total Assets $9,000,000Owners Equity $3,000,000 Mutual Insurance Bonds outstanding: 3,000selling at $980 Common stock outstanding: 260,000 selling at $23.40If the after-tax cost of debt is 8% for both companies and the costof equity is 12% for Amazon and 13% for Mutual, which company hasthe highest WACC?

Answer & Explanation Solved by verified expert

4.1 Ratings (548 Votes)

WACC calculations A Amazon Equity 3000000 Debt 5000000 Total capital Equity Debt Total capital 3000000 5000000 8000000 Weight of debt Debt Total capital Weight of debt 5000000 8000000 0625 Weight of equity Equity Total capital See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Compare Amazon Lite with Mutual Insurance using the followingbalance sheet information and calculate their WACC. Amazon CurrentAssets $2,000,000 Current Liabilities $1,000,000 Fixed Assets$7,000,000 Long-term Liabilities $5,000,000 Total Assets $9,000,000Owners Equity $3,000,000 Mutual Insurance Bonds outstanding: 3,000selling at $980 Common stock outstanding: 260,000 selling at $23.40If the after-tax cost of debt is 8% for both companies and the costof equity is 12% for Amazon and 13% for Mutual, which company hasthe highest WACC?