Reference no: EM132599515
Question 1: Explain what a company's capital structure is.
Question 2: List the long-term sources of financing used by companies to finance investment capital, in order of lower at highest cost, and explain the factor that causes one capital source to be more or less expensive than the other sources.
Question 3: Using the debt cost approximation formula, determine the pre-tax cost for a bond that sells at $925 of its even value and pays an $85 coupon for 20 years. The issuance costs (flotation costs) are $5 per bonus. (You will need to show the equation and formula used, to receive a full score for your answer).
Question 4: For the case presented in problem 3, calculate the cost of debt after tax if the company's contributory liability is 40%. (You'll need to show the counts to receive a score for your answer).
Question 5: Consider issuing preferred shares with an annual dividend of $12.00 per preferred share. These shares will sell for $100 each. The cost of issuance (flotation cost) is $8 per share. Calculate the preferred cost of capital. (You'll need to show the counts to receive a score for your answer).
Question 6: DupT Corporation plans to issue common shares to finance its next capital investment project. The market price of the corporation's shares is $75 per share. A $5 dividend per share is expected at the end of the year. The corporation has had an average annual growth of 6%. The cost of issuance is $2.50 per share. Determine the cost of equity capital using Gordon's (Gordon Growth Model) constant growth method. (You will need to show the counts to receive credit for your answer).
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