Question
In: Finance
Allison, Inc. has established a target capital structure of 35 percent debt and 65 percent common...
Allison, Inc. has established a target capital structure of 35 percent debt and 65 percent common equity. The firm expects to earn $550 million in after-tax income during the coming year, and it will retain 35 percent of those earnings. The current market price of the firm's stock is $26; its last dividend was $2.25, and its expected growth rate is 5.5 percent. Allison can issue new common stock at a 15 percent flotation cost.
a. What is the cost of retained earnings?
b. What is the cost of a new common stock issue?
c. What is the maximum capital budget that Allison can support with
retained earnings?
d. Suppose Allison has a $450 million budget. What will be Allison’s marginal cost of common equity?
Solutions
jeff jeffy answered 14 hours agoRelated Solutions
Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...
Kahn Inc. has a target capital structure of 65% common equity
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of 12%, and a tax rate of 25%. The company's retained earnings are
adequate to provide the common equity portion of its capital
budget. Its expected dividend next year (D1) is $2, and
the current stock price is $32.
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Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...
Kahn Inc. has a target capital structure of 65% common equity
and 35% debt to fund its $8 billion in operating assets.
Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debt
of 11%, and a tax rate of 25%. The company's retained earnings are
adequate to provide the common equity portion of its capital
budget. Its expected dividend next year (D1) is $2, and
the current stock price is $29.
What is the company's expected growth...
Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund...
Kahn Inc. has a target capital structure of 65% common equity
and 35% debt to fund its $10 billion in operating assets.
Furthermore, Kahn Inc. has a WACC of 16%, a before-tax cost of debt
of 12%, and a tax rate of 40%. The company's retained earnings are
adequate to provide the common equity portion of its capital
budget. Its expected dividend next year (D1) is $3, and
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Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no...
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%
has a target capital structure of 65% common equity and 35% debt to fund its $10...
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to fund its $10 billion in operating assets. Furthermore, Kahn Inc.
has a WACC of 16%, a before-tax cost of debt of 12%, and a tax rate
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Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...
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Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...
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Round your answers to two decimal places. Do not round your...
Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with...
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