What is the optimal capital budget

Reference no: EM131393964

Tri-Q Supply Company is considering an expansion project to increase sales. The project, which costs $2.6 million, has an IRR equal to 9.2 percent. Any portion of the project can be purchased. Tri-Q expects to retain $1.3 million of earnings this year. It can raise up to $420,000 in new debt with a before-tax cost equal to 5 percent; any additional debt will cost 7 percent before taxes. Tri-Q's cost of retained earnings is 12 percent, and its cost of new common equity is 14 percent. Its target capital structure consists of 35 percent debt and 65 percent common equity. If Tri-Q's marginal tax rate is 40 percent, what is the optimal capital budget?

Reference no: EM131393964

Questions Cloud

Explain how you will address jims recent performance issues : Explain how you will address Jim's recent performance issues. Suggest both constructive and positive feedback designed so that Jim will leave motivated to do his best.

What will be cwc''s after-tax operating income : Assume that all sales and operating expenses, except depreciation, are cash. CWC's marginal tax rate is 40 percent.

Describe any relevant variables-measures and statistical tes : The written research proposal will be created based on a narrowly defined aspect of the topic selected in Week One. A research proposal is a detailed plan for a specific study to be conducted at a future time. It is the document which potential re..

Evaluate a specific option for each capital project : Evaluate, rank, and recommend a specific option for each capital project according to beneficial value to the organization, using the evaluation tools NPV, payback, and IRR.

What is the optimal capital budget : If Tri-Q's marginal tax rate is 40 percent, what is the optimal capital budget?

What is its marginal cost of capital to raise needed funds : If Killer needs to raise $220,000 and it expects to generate $100,000 in retained earnings this year, what is its marginal cost of capital to raise the needed funds?

Determine the expected rate of return on joness stock : Determine the expected rate of return on Jones's stock (cost of equity). Develop a 10 slide presentation in PowerPoint format. Perform your calculations in an Excel spreadsheet.

Compute wacc break point associated with raising new funds : Compute the WACC break point(s) associated with raising new funds

Explain determine how many shares you can buy : Indicate the number of shares you are buying, and the price of the shares you are buying for each company: Once you decide the companies and the amount for each company, determine how many shares you can buy.

User Account

All Pages