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Total amount of financing used to finance

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Reference no: EM132540540

The last balance sheet of Lotus company is as follows Assets:

Current Assets: 20 000 000

Long-Term Assets: 80 000 000

Total Assets: 100 000 000

Liability and Equity

Account Payables: 4 000 000

Accrued Expenses: 1 000 000

Short-Term Loan: 15 000 000

Long Term Loan: 50 000 000

Equity as Common Stock: 30 000 000

Total Liab. and Equity: 100 000 000

This firm do not have any outstanding preferred stocks.

a) What is the total amount of financing used to finance the assets of this firm?

b) What is the weight of debt and the weight of equity (common stock) in financing the assets of that firm?

c) Assume that this firm has only one short term loan whose annual interest rate is 10% and only one long-term loan whose annual interest rate is 12%. What is the cost of debt for that firm if the corporate tax rate is 20%?

d) This firm uses dividend discount method to find the cost of equity. What is the cost of equity if the expected dividend next year is $3 per share, if the current market value of Lotus shares is $30 per share and if firm expects an annual growth rate of 5% in future dividends?

e) What is the WACC (weighted average cost of capital) fort hat firm?

Note: You may use two or three decimals (e.g. 25.15) in your answers

Reference no: EM132540540

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