What is the firms cost of capital

Assignment Help Financial Management
Reference no: EM132066439

ABC has the following market value capital structure, which is considered to be optimal. The firm has no preferred stock.

Debt $400,000

Equity $600,000

New bonds currently have a 10% coupon rate and ABC's stock sells for $20 per share. The expected growth in dividends is 8 percent. The corporate tax rate is 30 percent and the firm net income was $5 million, Finally , the firm paid 20% of its earnings out as dividends. 1 Million shares outstanding.

a) What is the firms cost of capital?

b) If the flotation cost is 10%, how much capital can the firm raise before its marginal cost of capital increases? What is the new cost of capital?

Reference no: EM132066439

Questions Cloud

What is the number of fleet miles today : If Reliable’s fleet miles are predicted to reach 4.4 million in 3 years, what is the number of fleet miles today?
How many acres of strawberry plants will the farm : Fred North owns Redlands Farms, a successful strawberry farm. how many acres of strawberry plants will the farm have in 8 years?
What risk would you put into a banking stress test : What risk would you put into a banking stress test ? Why are these risk scenarios extreme but possible ?
What is the total amount of compound interest earned : What is the total amount of compound interest earned over the 10-year period?
What is the firms cost of capital : What is the firms cost of capital? how much capital can the firm raise before its marginal cost of capital increases? What is the new cost of capital?
What is the current value of the abacus common stock : Abacus Corporation will pay dividends of $2.18, $2.96, and $3.09 in the next three years. what is the current value of the Abacus common stock?
What should that do to the price of call options : Consider options on coffee. If the current price of coffee drops, what should that do to the price of call options that are near expiration?
Best example of systematic-risk event : Which of the following provides the best example of a systematic-risk event?
Identify one of the gross income inclusions : Identify one of the gross income inclusions. In your opinion, do you agree that it has been included as income?

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd