Reference no: EM131332435
You are given the following information about a company. Their tax rate is 34%. The firm is in need of $5 million dollars in external funds. Your bond advisor suggests that new bond issues can be lower than the current yield to maturity by 2.0% . You are not sure he is correct. Should you issue the new debt to raise money?
Existing capital structure:
Debt: 5,000 Eight percent (8%) coupon bonds outstanding. The par value is $1000 and they mature in ten years. They are currently selling for $1250 and make semiannual payments.
Equity: 50,000 shares outstanding. The common stock is currently selling for $72 per share. The beta for the company is 1.15.
Preferred Stock: 10,000 shares of 2% preferred stock with a par value of $100, and is currently selling for $65 per share.
Market Information: The risk of the market is 6% and the risk-free rate is 2%. The industry debt-equity ratio is 33%.
The flotation rate for new debt is 3% and for new equity it is 5%.
1) Calculate the existing weighted average cost of capital.
2) New cost of capital if add 5M in new bonds (This assumes we sell enough bonds to realize 5M. Since the price will be net of flotation we need to sell them at 1000 but net a bit less.)
3) What if they finance the 5M with all equity? What would the capital structure and WACC look like?
4) What if they add 5M in financing split among debt and equity in proportions equal to the current capital structure. What is the WACC?
|
About the depreciation tax shield
: What is the OCF? What is the depreciation tax shield?
|
|
Employees performance and commitment
: Critical Reasoning - BSB10177-5 - Critically evaluate and discuss its advantages and disadvantages for the company in the employee's performance and commitment and justify and discuss possible strategies to avoid them before they become a major is..
|
|
Prove in given two player zero sum game
: Prove that in a two-player zero-sum game, every correlated equilibrium payoff to Player I is the value of the game in mixed strategies.
|
|
Describe structural equation modeling
: Your assignment this week is to describe structural equation modeling in which you include: (a) a comparison of the first and second generation models of structural equation modeling and their related major assumptions, (b) how regression analysis..
|
|
Should you issue the new debt to raise money
: You are given the following information about a company. Their tax rate is 34%. The firm is in need of $5 million dollars in external funds. Your bond advisor suggests that new bond issues can be lower than the current yield to maturity by 2.0% . You..
|
|
Calculate the sample correlation coefficient
: a. Calculate the sample correlation coefficient. b. Use the 5% significance level to test for a positive population correlation between the time on the shelf ("X") and the moisture content ("Y").
|
|
Find an accident that was discuss about communication
: Communication is a vital part of the air traffic system. The assignment is to find an accident or incident that was a direct result of a break down in communication between a controller and a pilot. This paper needs to be a college level paper at ..
|
|
Find the value of the game and the optimal strategies
: Does every correlated equilibrium lie in the convex hull of the product distributions that correspond to pairs of optimal strategies?
|
|
What is projected net income
: A proposed new investment has projected sales of $833,000. Variable costs are 54 percent of sales, and fixed costs are $187,280; depreciation is $95,000. Assume a tax rate of 40 percent. What is the projected net income?
|