If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows:

The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment.

Quantitative Problem: Barton Industries expects next year's annual dividend, D₁, to be $1.50 and it expects dividends to grow at a constant rate g = 4.8%. The firm's current common stock price, P₀, is $20.00. If it needs to issue new common stock, the firm will encounter a 5.4% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.

%

What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places.

%

Locate an article or website that addresses business plan development and/or management. Identify and explain a key recommendation from this source that was not addressed in Chapter 25: Putting It All Together: Creating a Business Plan That Is Strategic. For example, you may explain ways to manage a budget or how to conduct a market analysis. You also can explain a technical tool (e.g., software) used for budgeting a business — not for personal finances. Be sure to cite your source.

You manage an equity fund with an expected risk premium of 10.4% and a standard deviation of 18%. The rate on Treasury bills is 5%. Your client chooses to invest $45,000 of her portfolio in your equity fund and $55,000 in a T-bill money market fund. What is the reward-to-volatility (Sharpe) ratio for the equity fund? (Round your answer to 4 decimal places.)

Sunland’s Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle will be $3.00. The cost per unit will be $7.50 in the small factory. The large factory would have fixed cash costs of $2.5 million and a depreciation expense of $300,000 per year, while those expenses would be $510,000 and $100,000, respectively in the small factory.

Calculate the accounting operating profit break-even point for both factory choices for Sunland’s Candles. (Round answers to nearest whole units, e.g. 152.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 4%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.12.

You require that your portfolio yield an expected return of 12%, and that it be efficient, on the best feasible CAL.

a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.)

b. What is the proportion invested in the T-bill fund and each of the two risky funds? (Round your answers to 2 decimal places.)

Many American businesses that use corporate structures choose to incorporate in Delaware even if they are physically based in another state. Legally, why might a business from, say, New York choose to be a Delaware corporation rather than just a New York Corporation? Explain.

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.10.

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 5%. The probability distribution of the risky funds is as follows:

Expected Return Standard Deviation

Stock fund (S) 17% 30%

Bond fund (B) 11 22

The correlation between the fund returns is 0.10.

What is the Sharpe ratio of the best feasible CAL?

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of $2,000.

What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price            $

What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Current yield       6.09      %

Problem 9-8
Additional Funds Needed

Stevens Textile's 2012 financial statements are shown below:

Balance Sheet as of December 31, 2012 (Thousands of Dollars)

Income Statement for December 31, 2012 (Thousands of Dollars)

A. Suppose 2013 sales are projected to increase by 20% over 2012 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2013. The interest rate on all debt is 9%, and cash earns no interest income. Assume that all additional debt is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2012, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Round your answers to the nearest dollar. Do not round intermediate calculations.

B. What is the resulting total forecasted amount of notes payable? Round your answer to the nearest dollar. Do not round intermediate calculations.
Notes payable     $  

C. In your answers to Parts a and b, you should not have charged any interest on the additional debt added during 2013 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don't do any calculations, but how would this change the answers to parts a and b?

Assume that 8 years ago you borrowed $200,000 as a 30-year mortgage on your home with an annual percentage rate of 7% at monthly payments (12 payments per year). You plan to refinance this mortgage with a new 30 year low at the current rate of 5%.

a. What is the monthly payment of the original mortgage.

b. How much do you still owe of the original principal after seven years? (Hint: for a loan that is amortized, like a mortgage, the amount you still owe at any time is the present value of the remaining payments that have not yet been made).

c. How much money can you borrow now at the new interest rate if you keep the same monthly payments as the original mortgage?

Hello,
i need a 1.5 Pages report about southwest airlines, the paper should discuss 6 ratios of the company, explaining what these numbers are telling us, we are not required to do calculation or show how we solved them, just mention 6 ratios and explain them, and how investors are affected and what information it gave us to improve our business.

**the ratios could be found in any general website.