Reference no: EM13947851
Medical Research Corporation has been expanding its production capacity and research to introduce a new product line. Current plans call for spending $ 100 million in four projects of the same magnitude ($ 25 million each), but offer different performance. Project A is on proteins for blood clotting and has an expected return of 18%. Project B is related to a vaccine for hepatitis and includes an expected return of 14%. The C project, which is a cardiovascular compound, has expectations to win 11.8%, and D project, an investment of orthopedic implants, has the expectation of showing a 10.9% yield.
The company has $ 15 million in retained earnings. After a capital structure is reached with $ 15 million in retained earnings (in which the retained earnings account for 60% of funding), any additional equity financing should be channeled in the form of new common capital.
The common stock sold at a price of $ 25 per share and insurance costs have been estimated at $ 3 if the new shares are issued. The dividends for the following year will be $ 0.90 per share (D), and profits and dividends have consistently grown 11% per year.
The comparative performance of bonds has been hovering around 11%. The investment banker feels that the first $ 20 million of bonds could be sold so that changeover yield 11% while the additional debt may require a premium of 2% and sold so that changeover yield 13%. The corporate tax rate is 30%. The debt represents 40% of the capital structure.
a. Based on the two sources of funding, is the cost of initial capital weighted average? (Use K and K)
|
What is the annual cost of the inventory system
: Rusk Corporation sells 185,000 gallons of paint annually at several retail outlets. The ordering cost per order is $75, and its cost of capital is 10%. The storage and handling cost for paint is $2 per year, based on average inventory. Find the optim..
|
|
Calculate the optimal size of an order
: Hull Baking Company uses 250,000 lb of sugar annually in its cakes and pastries. The company can order the sugar in 100 lb bags, at the cost of $19.50 per bag, delivered. The cost of preparing and sending an order is $50. The storage and handling cos..
|
|
Using the concept of up-regulation and down regulation
: Using the concept of Up-regulation and down regulation explain why individuals sometimes have to increase their medications to receive the same effects?
|
|
Calculate difference between daily and annual compounding
: How much would you be willing to pay for a bond that pays semi-annual coupon payments and has the following characteristics: Calculate the difference between daily and annual compounding, Calculate the RATE given the following characteristics: Calcul..
|
|
Production capacity and research to introduce product line
: Medical Research Corporation has been expanding its production capacity and research to introduce a new product line. Current plans call for spending $ 100 million in four projects of the same magnitude ($ 25 million each), but offer different perfor..
|
|
What return will now be expected on the portfolio
: An investor was expecting a 18% return on his portfolio with beta of 1.25 before the market risk premium decreased from 8% to 6%. Based on this change, what return will now be expected on the portfolio?
|
|
Find the optimal capacity of the unit train
: Dulles Electric Company buys 1 million tons of coal annually to burn at its power plant. The company wants to invest in a unit train that will haul coal from the mine to the power house, where it is dumped in a large field. Find the optimal capacity ..
|
|
What is the approximate variance of returns for a security
: What is the approximate variance of returns for a security if the expected returns are -4.0%, 6.0%, and 15.0%, and the probabilities of occurring are 0.40, 0.30, and 0.30, respectively? A. 470 B. 63 C. 30 D. 961
|