Reference no: EM131884066
The Cost of Capital: Weighted Average Cost of Capital
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if the firm will have to issue new common stock, the cost of new common stock should be used in the firm's WACC calculation.
Quantitative Problem: Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. Assume that the firm's cost of debt, rd, is 7.5%, the firm's cost of preferred stock, rp, is 7% and the firm's cost of equity is 11.5% for old equity, rs, and 12.08% for new equity, re. What is the firm's weighted average cost of capital (WACC1) if it uses retained earnings as its source of common equity? Round your answer to 3 decimal places. Do not round intermediate calculations. %
What is the firm’s weighted average cost of capital (WACC2) if it has to issue new common stock? Round your answer to 3 decimal places. Do not round intermediate calculations. %
|
Is the invention worth to patent
: For Syndexa and its founders, Mr. Hotamisligil and Mr. Uysal, is the invention worth to patent?
|
|
Discuss the impact of technology and its relationship
: Discuss the impact of technology and its relationship to spending in the United States vs. health outcomes.
|
|
Find the financial break-even quantity
: find the financial break-even quantity.
|
|
Review consumer behavior issues using given article
: The written synopsis should be brief, about 2-3 pages. It should highlight the main points, critically review consumer behavior issues and examine.
|
|
The cost of capital-weighted average cost of capital
: The Cost of Capital-Weighted Average Cost of Capital. What is the firm’s weighted average cost of capital (WACC2) if it has to issue new common stock?
|
|
What type of sampling method is used
: What type of sampling method is used? Is it appropriate to the design? Does the sample reflect the population as identified in the problem or purpose statement?
|
|
Explain five things that should know about you as a student
: In the subject line, write "ENGL 101 Email Assignment." In your email, please tell me five things I should know about you as a student, writer, and/or person
|
|
Operating leverage at accounting break-even level of output
: What is the degree of operating leverage at the given level of output? What is the degree of operating leverage at the accounting break-even level of output?
|
|
In what sense is word of mouth considered limitless
: Explain the relationship between the marketing concept, the consumer life cycle, and the role of Customer Touchpoint Management.
|