Solution-Compute the weighted average flotation cost

Compute the weighted average flotation cost

Assignment Help Finance Basics

Reference no: EM133056772

Lee Corp. uses the following sources of capital to finance its investment project: (17%) DEBT: 140,000 units of 15-year 9% coupon bonds that are currently selling at the price quote of 105 apiece. In addition, 50,000 units of 10-year 6% coupon bonds that are priced at 78 apiece. Both bonds pay coupons semi-annually! COMMON STOCK: 5,000,000 shares of common stock that is priced at $51.0 per share. Lee Corp. just paid $4.20 annual dividends per share, which is expected to grow annually at 7% indefinitely.

(a) Compute the weighted average cost of capital (WACC) for Lee Corp., given that the marginal tax rate is 35% and the book value of equity is $150M. Assume that all securities are fairly priced!

(b) Say, the flotation costs for issuing new debt and common stock are, respectively, 4% and 18%. Without accounting for flotation costs, the initial outlay and NPV of the project are estimated to be $435M and $55M, respectively. Compute the weighted average flotation cost, and the NPV of this project after taking into account of the flotation costs.

Reference no: EM133056772

Questions Cloud

Mm model with corporate taxes : An otherwise identical but levered firm has $60 million in debt at a 5% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 11%. N

Explain the purpose of a retention cycle : Explain the purpose of a retention cycle and the maintenance tasks involved. Distinguish the differences between active, inactive, and closed files

Calculate the wacc for xyz inc : Calculate the WACC for XYZ Inc. Express your answer in percent and round to two decimals (do not include the %-symbol in your answer).

Thinking about data visualization : When thinking about data visualization, it is important to understand regular expressions in data analytics.

Compute the weighted average flotation cost : Lee Corp. uses the following sources of capital to finance its investment project: (17%) DEBT: 140,000 units of 15-year 9% coupon bonds that are currently selli

What is the depreciation : Your company is considering a new project whose data are shown below. What is the Depreciation each year related to new project?

Academic integrity and academic dishonesty sections : Identify two key elements of the catalog's Academic Integrity and Academic Dishonesty sections

Determine the present value of the debt : The company will pay $75,100 at the end of the first year, $112,600 at the end of the second year, Determine the present value of the debt

Assignment on option trading strategy : Jacob wrote one call option and one put option on FFC Corp shares. These two options have the same exercise volume and expiration date, but different exercise

User Account

All Pages

Compute the weighted average flotation cost

Reference no: EM133056772

Reference no: EM133056772

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT