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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Olsen Outfitters Inc.
believes that its optimal capital structure consists of 40% common
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have $1 million of retained earnings with a cost of rs =
12%. New common stock in an amount up to $7 million would have a
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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
earnings with a cost of rs = 12%. New common stock in an
amount up to $9 million would have a cost of re = 15.0%.
Furthermore, Olsen can raise up to $4 million of debt at an
interest...
Klose Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40%...
Klose Outfitters Inc. believes that its optimal capital
structure consists of 60%
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
interest rate of...
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
earnings with a cost of rs = 12%. New common stock in an amount up
to $10 million would have a cost of re = 16%. Furthermore, Olsen
can raise up to $3 million of debt at an interest...
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
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, Olsen can
raise up to $4 million of debt at an interest...
A company has determined that its optimal capital structure consists of 40 percent debt and 60...
A company has determined that its optimal capital structure
consists of 40 percent debt and 60 percent equity. Given the
following information, calculate the firm's weighted average cost
of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock
Price = $27.15, Long Run Growth rate = 4.4%, Next Year's Dividend =
$1.88. Show your answer to the nearest .1%. Do not use the % sign
in your answer. Enter your answer as a whole number, thus 9.2%...
A company has determined that its optimal capital structure consists of 40 percent debt and 60...
A company has determined that its optimal capital structure
consists of 40 percent debt and 60 percent equity. Given the
following information, calculate the firm's weighted average cost
of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock
Price = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend =
$2.26. Show your answer to the nearest .1%. Do not use the % sign
in your answer. Enter your answer as a whole number, thus 9.2%...
Air France Company has a target capital structure that consists of 40% debt, and 60% equity,...
Air France Company has a target capital structure that
consists of 40% debt, and 60% equity, the company is considering a
project (capital budget) that costs $12,000,000 to launch five new
Boeing Airplanes.
Also the company has the following information:
Net income $8,800,000
Total sales $36,825,000
Earnings Per Share $4.4
Price per share $68
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$4,800,000
$7,200,000
$5,280,000
$3,520,000
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XYZ Company has 40% debt 60% equity as optimal capital structure. The nominal interest rate for...
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XYZ Company has 40% debt 60% equity as optimal capital structure. The nominal interest rate for...
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...
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