Prepare marginal cost of capital schedule

Assignment Help Financial Management

Reference no: EM131057838

Balance Sheet: Wisconsin Dairy Product, millions of dollars:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Current assets $100 Current Liabilities $50

Fixed assets 400 Long-term debt 200

Deferred Taxes 50

Common Stock 100

Retained Earnings 100

Total Assets 500 T L & NW $500

The debt consists of 20-year, 8 percent, $1000 bonds, presently selling at $701.25. Flotation costs on new bonds would raise the effective before tax interest cost to 0.5 percent above the yield to maturity on existing debt. The company has 10 million shares of common stock outstanding, with a market price of $30 a share. The stock has a beta of 1.5. The risk-free rate is 10 percent and the average market risk premium is 6.5 percent. Flotation costs would raise the effective cost of new equity by 1 percent over the cost of existing equity. Over the next year, which is the company's capital investment planning period, the company expects to have $20 million of internally generated funds in addition to net income of $30 million. At least half of the net income must be paid put in dividends. The company faces a 35 percent marginal tax rate. Prepare a marginal cost of capital schedule.

Reference no: EM131057838

Questions Cloud

Management decisions commonly made : Identify an article on any one of the following management decisions commonly made in an organization:

Some high-level planning during your project initiation : Discussion Question 1: The initiating process is the formal beginning of a new project. As the project manager for the Ground Control System Project, what would you need to know or have before you initiate your project?

Discuss the reasons why you need to use them : Professionals working in software industry often refer "software design" as "building the bridge between user requirements and the software code".

Economic basis for international trade : What are the economic basis for international trade? Explain in detail the gains from mutual absolute advantage and comparative advantage with an example.

Prepare marginal cost of capital schedule : The debt consists of 20-year, 8 percent, $1000 bonds, presently selling at $701.25. Flotation costs on new bonds would raise the effective before tax interest cost to 0.5 percent above the yield to maturity on existing debt. At least half of the net ..

Assessmentof a healthcare organization : In order for one to truly appreciate and learn the concepts of strategic management one must be positioned at the head of the table as a leader in a healthcare organization. This project is intended to afford a proximal experience of some actual e..

Question regarding the asymmetric information : Labor markets are characterized by asymmetric information because

Before-tax component cost of debt : Oberon, Inc., has a $10 million (face value) 8-year bond issue selling for 96 percent of par that pays an annual coupon of 8.00 percent. What would be Oberon’s before-tax component cost of debt?

What was the stock value when purchased : Four years ago I purchased 100 shares of the XYZ Corp preferred stock. The company pays a $6.75 annual dividend and had a required return of 19%. The most recent required return for the stock is 14%. What was the stock value when purchased? What was ..

User Account

All Pages