Question

In: Finance

The Nolan Corporation finds that it is necessary to determine its marginal cost of capital. Nolan’s...

The Nolan Corporation finds that it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 45 percent debt, 25 percent preferred stock, and 30 percent common equity. Initially common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 7.5 percent; preferred stock, 5 percent; retained earnings, 13 percent; and new common stock, 14.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Weighted average cost of capital % b. If the firm has $15 million in retained earnings, at what size of investment will the firm run out of retained earnings? (Enter the answer in millions.) Capital structure size (X) $ million c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 30 percent of the capital structure, but it will all be in the form of new common stock, Kn.) (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Marginal cost of capital % d. The 7.5 percent cost of debt referred to above applies only to the first $36 million of debt. After that the cost of debt will be 8.5 percent. At what size of investment will there be a change in the cost of debt? (Enter the answer in millions.) Capital structure size (Z) $ million e. What will the marginal cost of capital be immediately after that point? (Consider the facts in both parts c and d.) (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Marginal cost of capital %

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 30 percent debt, 20 percent preferred stock, and 50 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.2 percent; preferred stock, 8 percent; retained earnings, 9 percent; and new common stock, 10.2 percent. a. What...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 30 percent debt, 30 percent preferred stock, and 40 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt (after-tax), 8.5 percent; preferred stock, 6 percent; retained earnings, 12 percent; and new common stock, 13.2 percent. a....
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 35 percent debt, 25 percent preferred stock, and 40 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt (after-tax), 5.4 percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, 11.2 percent. a....
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 30 percent debt, 15 percent preferred stock, and 55 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt (after-tax), 4.6 percent; preferred stock, 10 percent; retained earnings, 9 percent; and new common stock, 10.2 percent. a....
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 35 percent debt, 10 percent preferred stock, and 55 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt (after-tax), 5.6 percent; preferred stock, 11 percent; retained earnings, 8 percent; and new common stock, 9.2 percent. a....
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 35 percent debt, 25 percent preferred stock, and 40 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 6.2 percent; preferred stock, 8 percent; retained earnings, 11 percent; and new common stock, 12.2 percent. a. What...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 30 percent debt, 20 percent preferred stock, and 50 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt (after-tax), 7.6 percent; preferred stock, 7 percent; retained earnings, 13 percent; and new common stock, 14.2 percent. a....
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 6.6 percent; preferred stock, 6 percent; retained earnings, 11 percent; and new common stock, 12.2 percent. a. What...
10. The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s...
10. The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 30 percent debt, 30 percent preferred stock, and 40 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 8.5 percent; preferred stock, 6 percent; retained earnings, 12 percent; and new common stock, 13.2 percent. a....
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current...
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current capital structure calls for 50 percent debt, 25 percent preferred stock, and 25 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 7.2 percent; preferred stock, 10.0 percent; retained earnings, 12.0 percent; and new common stock, 13.2 percent. a. What...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT