XYZ Company has 40% debt 60% equity as optimal capital
structure. The nominal interest rate for the company is 12% up to
$5 million debt, above which interest rate rises to 14%. Expected
net income for the year is $17,5 million, dividend payout ratio is
45%, last dividend distributed was $4,5/share, P0 = $37, g=5%,
flotation costs 10% and corporate tax rate is 40%.
a. Find the break points
b. Calculate component costs (cost of each financing source)
c. Calculate...