Question
In: Finance
The Happy Company have an optimal capital structure that consists of 40% debt and 60% common equity.
WEIGHTED AVERAGE COST OF CAPITAL
The Happy Company have an optimal capital structure that consists of 40% debt and 60% common equity. They expect to have $30,000,000 of new retained earnings available for investment for the next year.
• BONDS. Their investment bankers assure them that they could issue $8,000,000 (net of flotation costs) of $1000 face value bonds carrying a 10% coupon rate, paying annual interest, having a 10-year maturity, at a price of $900. Flotation costs for this issue would be $50 per bond. Bonds issued beyond $8,000,000 will have a flotation cost of $100 per bond, a price of $900, a 10% coupon rate, and a 10-year maturity.
• COMMON STOCK. The current stock price is $60. The dividend paid yesterday was $9 per share. Dividends are expected to grow at a rate of 6%, forever. New shares of stock can be issued at $60 per share and flotation costs would be $3 per share.
• The Happy Company have a corporate tax rate of 30%.
SKETCH THE MARGINAL COST OF CAPITAL SCHEDULE AND LABEL ALL POINTS
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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rate is 40%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $3 million of retained
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Klose Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40%...
Klose Outfitters Inc. believes that its optimal capital
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common equity and 40% debt, and its tax rate is 40%. Klose must
raise additional capital
to fund its upcoming expansion. The firm will have $2 million of
retained earnings with
a cost of rs 12%. New common stock in an amount up to $6 million
would have a cost of
re 15%. Furthermore, Klose can raise up to $3 million of debt at an
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Olsen Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40%...
Olsen Outfitters Inc. believes that its optimal capital
structure consists of 60% common equity and 40% debt, and its tax
rate is 40%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $3 million of retained
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to $10 million would have a cost of re = 16%. Furthermore, Olsen
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A company has determined that its optimal capital structure consists of 40 percent debt and 60...
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Price = $27.15, Long Run Growth rate = 4.4%, Next Year's Dividend =
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Price = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend =
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Also the company has the following information:
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Total sales $36,825,000
Earnings Per Share $4.4
Price per share $68
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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%,
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a. Find the break points
b. Calculate component costs (cost of each financing source)
c. Calculate...
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