1. Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $925.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC?
2. Roger converted all $100,000 in his Traditional IRA to his Roth IRA on December 1, 2014. Of which $20,000 of the amount converted was his adjusted basis. Roger included $80,000 ($100,000 - $20,000) in his gross income on his Form 1040 in 2014 for the Roth conversion. On April 5th, 2018, Roger made a regular contribution of $5,000 to a Roth IRA for the 2017 year. Roger took a $150,000 distribution from his Roth IRA on July 31st, 2018 to purchase a once-in-a-lifetime trip around the world vacation for his 61st birthday present to himself. How is the $150,000 distribution taxed if the value of the account just before the distribution equals $200,000?
a. The distribution is tax free and penalty free.
b. The distribution is not subject to tax, but he will have to pay a penalty of $4,500.
c. $45,000 of the distribution is taxable but there is no penalty.???
d. $150,000 of the distribution is taxable and there is a penalty of $15,000.
e. $150,000 of the distribution is taxable but there is no penalty.