Mahomes Company needs to raise $275 million to start a new project and will raise the...

Mahomes Company needs to raise $275 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 4 percent, and for new debt, 2 percent. What is the true initial cost figure the company should use when evaluating its project?

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jeff jeffy answered 2 years ago

Cully Company needs to raise $23 million to start a new project and will raise the...

Cully Company needs to raise $23 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 8 percent, for new preferred stock, 6 percent, and for new debt, 4 percent. What is the true initial cost...

Cully Company needs to raise $45 million to start a new project and will raise the...

Cully Company needs to raise $45 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 7 percent, for new preferred stock, 4 percent, and for new debt, 2 percent. What is the true initial cost...

Southern Alliance Company needs to raise $70 million to start a new project and will raise...

Southern Alliance Company needs to raise $70 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 70 percent common stock, 15 percent preferred stock, and 15 percent debt. Flotation costs for issuing new common stock are 10 percent, for new preferred stock, 7 percent, and for new debt, 2 percent. What is the true initial...

Southern Alliance Company needs to raise $27 million to start a new project. The company has...

Southern Alliance Company needs to raise $27 million to start a new project. The company has a target capital structure of 60 percent common stock, 11 percent preferred stock, and 29 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 8 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project?

Luther Industries needs to raise $25 million to fund a new office complex. The company plans...

Luther Industries needs to raise $25 million to fund a new office complex. The company plans to issue 10-year maturity bonds with a face value of $1000 and a coupon rate of 7.0% paid annually. The following table summarizes the YTM for ten-year corporate bonds of various credit ratings: RATING AAA AA A BBB BB YTM(%) 6.70% 6.80% 7.00% 7.40% 8.00% a) Luther anticipates an A rating. However, a BBB rating is possible. How much more in interest will Luther...

A firm needs to raise 150 million dollars for the project. What are the firm's options...

A firm needs to raise 150 million dollars for the project. What are the firm's options of raising funds to finance this large capital project.

Your company needs to raise $46 million to finance a new factory. You’re evaluating two different...

Your company needs to raise $46 million to finance a new factory. You’re evaluating two different 25-year bonds to raise these funds: a coupon bond with an annual coupon rate of 7 percent; and a zero coupon bond. Your company’s tax rate is 30 percent. Both bonds will have a par value of $1,000, and a required annual return of 7 percent with semi-annual compounding. a-1. How many of the coupon bonds would you need to issue to raise the $46...

Your company needs to raise $44 million to finance a new factory. You’re evaluating two different...

Your company needs to raise $44 million to finance a new factory. You’re evaluating two different 20-year bonds to raise these funds: a coupon bond with an annual coupon rate of 8 percent; and a zero coupon bond. Your company’s tax rate is 40 percent. Both bonds will have a par value of $1,000 and a required annual return of 8 percent with semi-annual compounding. a-1. How many of the coupon bonds would you need to issue to raise the $44...

Your company plans to raise $100 million to finance its new two-year project by issuing new...

Your company plans to raise $100 million to finance its new two-year project by issuing new two-year bonds (with annual coupons and annual compounding). Your company and its new project are currently considered risk-free. Unfortunately, covenants in the preexisting debt issued during harder times impose restrictions on the amount of new debt. Specifically, if the face value of the new bond issue is below $100 million, your company can promise to pay an annual coupon of up to 5%. However,...

The Scandrick Corporation needs to raise $65 million to finance its expansion into new markets. The...

The Scandrick Corporation needs to raise $65 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the the offer price is $35 per share and the company’s underwriters charge a spread of 7 percent, how many shares need to be sold?

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