Compute the weighted cost of capital

Reference no: EM1315316

Compute the weighted cost of capital that is appropriate to use in evaluating this expansion program

The Ewing Distribution Company is planning a $100 million expansion of its chain of discount service stations to several neighboring states. The expansion will be financed, in part, with debt issued with a coupon interest rate of 6.8%. The bonds have a ten year maturity and a 1,000 face value, and they will be sold to net Ewing $990 per bond. Ewing\'s marginal tax rate is 40%.

Preferred stock will cost Ewing 7.5% after taxes. Ewing\'s common stock pays a dividend of $2 per share.The current market price per share is $35. Ewing\'s dividends are expected to increase at an annual rate of 5% for the foreseeable future. Ewing expects to generate sufficient retained earnings to meet the common equity portion of the funding needed for the expansion. Ewings target capital structure is as follows:

Debt = 20%

Preferred stock = 5%

Common Equity = 75%

Calculate the weighted cost of capital that is appropriate to use in evaluating this expansion program.

Reference no: EM1315316

Questions Cloud

What is the safest speed to go around the curve : Suppose the space shuttle is in orbit 460km from the Earth's surface, and circles the Earth about once every 93.80 minutes. Find the centripetal acceleration of the space shuttle in its orbit. Express your answer in terms of g, gravitational accelera..

Developing a database : You have been asked to develop a database utilizing only the written problem description given by the client. In reviewing the description.

What will happen to the price of bonds also to money : Illustrate what will happen to the price of bonds also to money holding if the Fed changes the interest rate as a result of a decrease in the money supply.

How elastic or stretchable the string is : A superhero flies 272m from the top of a tall building at an angle of 32 below the horizontal. What is the vertical component of the superhero's displacement.

Compute the weighted cost of capital : Compute the weighted cost of capital that is appropriate to use in evaluating this expansion program

Two companies respond to the macroeconomic conditions : Explore in particular Elucidate how the two companies' respond to the macroeconomic conditions in terms of their.

Assumptions of t distribution : Explain why we need to use the t distribution. What assumption do you need to make?

Determining r-square : If you have multiple regression output with 2 independent variables and R-Square is .9682, what does R-Square indicate?

With what speed does it head toward the goal : The suspended 2.82 kg mass on the right is moving up, the 2.2 kg mass slides down the ramp, and the suspended 8.1 kg mass on the left is moving down. There is friction between block and ramp. What is the acceleration of a three block system.

User Account

All Pages