Question 1:
Capital Co. has a capital structure, based on existing market values, that consists of 28 percent debt, 5 percent preferred stock, and 67 % common stock. If the returns need by investors are 10 percent, 11 percent, and 16 percent for the debt, common stock and preferred stock, respectively, what is Capital's after-tax WACC? Consider that the firm's marginal tax rate is 40 percent.
After tax WACC = _______ %
Question 2:
On January 1, 2008, Alison Inc., paid $60,000 for a 40 percent interest on Holister Corporation. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was net worth $20,000. The patent had a six-year remaining life. Any futher excess cost ass related with this acquisition was attributed to goodwill. During 2008, Holister earned income of $30,000 and paid dividends of $10,000. In 2009, it had income of $50,000 and dividends of $15,000.
Consider that Alison has the ability to significantly influence Holister's operations and uses the equity method, what balance could appear in the investment in Holister account as of December 31, 2009?