Marginal cost of capital increases

Assignment Help Financial Management

Reference no: EM132063552

ABC has the following market value capital structure, shown below, which is considered to be optimal. The firm has no preferred stock.

Debt $400,000

Equity $600,000

New bonds currently have a 10% coupon rate and ABC's stock sells for $20 per share. The expected growth rate in dividends is 8 percent. The corporate tax rate is 40 percent and the firm net income was $5 million. Finally, the firm paid 20% of its earning out as dividends.

a. What is the firm cost of capital?

b. If the flotation cost is 10%, how much capital can the firm raise before its marginal cost of capital increases? What is the new cost of capital?

Reference no: EM132063552

Questions Cloud

Vulnerable to inhibition of pdc activity : How does this selective tissue vulnerability explain the cardinal clinical manifestations of the disease?

Various types of secondary structure : What are the various types of secondary structure that this length of residues could be involved in?

Protein structures between earth : What major differences would exist in protein structures between earth and this hypothetical planet.

Measurements of oxygen binding by whole human blood : Measurements of oxygen binding by whole human blood, at 37C, at pH-7.4, and in the presence of 40mmHg of CO2

Marginal cost of capital increases : If the flotation cost is 10%, how much capital can the firm raise before its marginal cost of capital increases? What is the new cost of capital?

Create a digital story based on an object : Create a personal digital story you would like to give as a gift to someone who has been influential in your life.

What the role of ethanol in cellular energy supply : What the role of ethanol in cellular energy supply, the metabolism of ethanol (alcohol), the regulation of its metabolisbm and the disease conditions

Explain advantages and disadvantages of minimum wage : Write between 2.5 pages about the laws of the minimum wage in different states and the top and bottom states in MW. also mention both advantages.

Glucose by the end of cellular respiration : How many H20 molecules are produced per glucose by the end of cellular respiration?

User Account

All Pages