Calculate poon weighted average cost of capital

Reference no: EM132043910

Question: Poon Noodle House's current capital structure is 70 percent equity, 25 percent debt, and 5 percent preferred stock. This is considered optimal. Poon is considering a $50 million capital budgeting project. During the coming year Poon expects to have $15 million of retained earnings available to finance this capital budgeting project. The marginal tax rate is 40 percent.

• Poon can raise long-term debt at a pretax interest rate of 7 percent.

• Preferred stock can be sold at a $25 price with a $2 annual dividend. Flotation or issuance costs will be $3 per preferred share.

• Common stock can be sold at a $20 price. The common dividend is expected to be $3.00 next year. Dividends have been growing at an annual compound rate of 4 percent annually and are expected to continue growing at that rate into the foreseeable future. Flotation or issuance costs will be $4 per common share.

Calculate Poon's weighted average cost of capital that is appropriate to use in evaluating this capital budgeting project.

Reference no: EM132043910

Questions Cloud

What is the difference in total dollars : A loan officer states, "Thousands of dollars can be saved by switching to a 15-year mortgage from a 30-year mortgage." Calculate the difference in payments.

What amount will your annual payment be : Your mortgage payments, which are made at the end of each year (one payment each year), include both principle and 10% interest on the declining

Determine which alternative is less costly : A portable concrete test instrument used in construction for evaluating and profiling concrete surfaces (MACRS-GDS 5-year property class) is under consideration

What is the dollar amount of income that she needed : If London needs to have a total return of 0.20 during the year, then what is the dollar amount of income that she needed to have to reach her objective?

Calculate poon weighted average cost of capital : Calculate Poon's weighted average cost of capital that is appropriate to use in evaluating this capital budgeting project.

Explain how your selected biometric works : What are the ways that it be used in criminal investigations? Explain the limitations of your selected biometric.

What is unrealized gains and losses : Question: What is unrealized gains and losses from cash flow hedging derivatives?

Plot the profit-loss profile of the derivative hybrid : Plot of the profit/loss profile of the derivative hybrid created when you combine one long futures positions with a futures price of 19,000.

What is its ytm : The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Show workings)

User Account

All Pages