Answer to Question #304478 in Management for Tryth

Question

A. Empress Express has no debt but can borrow at 8.2 percent. The WACC for the firm is currently at 11 percent, and the tax rate is 35 percent.

1. What is the cost of equity for the firm?

2. If the firm converts to 25 percent debt, determine the total cost of equity and the WACC for the firm.

B. The analysis of inventory policy is analogous to the analysis of credit policy.

C. Explain how efficient inventory management affects the risk, liquidity and profitability of the firm.

D. Discuss any three (3) sources of information that you might use to analyze a credit applicant.

Answer 1

(1 and 2) Cost of equity is 11.61%

(c) Efficient inventory management reduces pilferage, holding and stock-out cots

(d) Bank statements, 3 months payslips and outstanding loans