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Seabreeze Limited plans to raise new capital for its project in Tasmania. You are employed to estimate its cost of capital for use in capital budgeting decision. The treasurer has given you the following information and has asked you to calculate the weighted average cost of capital for the company.
The company currently has an outstanding bond with 12% coupon rate and a convertible bond with an 8.1 % coupon rate. The firm has been informed by an investment banker that bonds of equal risk and credit rating are now selling at a yield of 14 % per annum. The common stock has a price of $30 with an expected dividend (D1) of $1.30 per share. The expected growth rate for earnings and dividends per share is 12% per annum in the future. The preference stock is selling at $60 per share and carries a dividend of $6.80 per share. The flotation costs are 3% of the selling price for the preference shares, no floatation costs will be incurred for any new debt and common stocks issued. The capital structure of the firm is comprised of 45% debts, 5 % preference shares and 50% common shares. The corporate tax rate is 30%.
Calculate the cost of capital for the individual components in the capital structure, and then calculate the weighted average cost of capital for Seabreeze. Consider after-tax cost of capital in your calculations.
Assume net income for the coming year is p redicted to be $1,634 and dividends are forecasted to be $657. After careful analysis, you determine asset needs for next year are $48,824 and liabilities are expected to be $12,869.
Rita Gonzales won the $60 million lottery. She is to get $1 million a year for the next 50 years plus an additional lump sum payment of $10 million after 50 years. The discount rate is 10 percent. What is current value of her winnings?
Three friends divided some bullets equally. After all of them shot 4 bullets the total number of bullets remaining is equal to the bullets each had after division. Find the original number divided.
You are going to be given $100,000 in 12 years. Assuming an inflation rate of 3.5%, what is the present value of this amount?
Ford's preferred stock pays a dividend of $3 each year and trades at a price of $27 per share. Ford's debt trades with a yield to maturity of 8.5%. What is Ford's weighted average cost of capital if tax rate is 30%?
Which of the following actions would improve this ratio? (Hint: create a simple balance sheet that has a current ratio of 0.5. Then, judge how the transactions below would affect the balance sheet.)
Critically discuss the differences between the binomial option pricing model and risk-neutral method of option pricing.
Compute the platinum & Steel Products's return on equity.
Your parents will retire in 19 years. They currently have $300,000, and they think they will need $1 million at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your ans..
The market expects that inflation will be 3% each year for the next five years and then the following years will average 5% a year.
You are considering an investment in a one-year gov't debt security with a yield of 5 % or a highly liquid corporate debt security with a yield of 6.5%. The expected inflation rate for the next year is expected to be 2.5%.
How much external financing will the firm have to seek? Assume there is no increase in liabilites other than that which will occur with the external financing.
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