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A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 10.0 percent coupon rate and another bond with an 7.6 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 10.9 percent. The common stock has a price of $54 and an expected dividend (D1) of $1.74 per share. The historical growth pattern (g) for dividends is as follows: $ 1.29 1.43 1.58 1.74 The preferred stock is selling at $74 per share and pays a dividend of $7.00 per share. The corporate tax rate is 30 percent. The flotation cost is 3.0 percent of the selling price for preferred stock. The optimal capital structure for the firm is 20 percent debt, 10 percent preferred stock, and 70 percent common equity in the form of retained earnings. a. Compute the historical growth rate. (Do not round intermediate calculations. Round your answer to the nearest whole percent and use this value as g. Input your answer as a whole percent.) Growth Rate b. Compute the cost of capital for the individual components in the capital structure. (Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Debt Preferred Stock Common Equity c. Calculate the weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Debt Preferred Stock Common Equity.
Independent of item 4, your company needs to raise capital to build an addition. The addition is 5% of your current total assets. What debt/equity mix is the best mix and why? how long will it take for the project to be accepted?
Bosio Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's..
Dobson Dairies has a capital structure consisting of 60% debt and 40% common stock. What is the company's WACC?
You are to make monthly deposits of $775 into a retirement account that pays 9.9 percent interest compounded monthly. Required: If your first deposit will be made one month from now, how large will your retirement account be in 30 years?
The dividend is expected to grow at a rate of 5% and investors’ required rate of return for Symantec stock is 9% per year.
Which of the following statements about accrual basis accounting is not correct?
Nonconstant growth Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. If the required return on Microtech is 15%, what is the value of the stock today?
A $1000 face value bond with a maturity of 6 years and a 7.8750% coupon rate paying quarterly interest payments is currently selling for $992.57.
What was the average annual growth rate of Maria's salary?
What are the main component sub-accounts of the current account in the balance of payments (BoP)?
In the Wall Bricks, Inc.’s balance sheet lists net fixed asset as $15 million. What is the book value of Wall Bricks’ assets today?
A U.S. company expects to receive 1 million British pounds in 1 year. The U.S. deposit rate for 1 year is 4% and the borrowing rate for 1 year is 9%. The British deposit rate for 1 year is 3% and the borrowing rate for 1 year is 8%. Calculate the val..
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