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Kendra Brown is analyzing the capital requirements for Reynolds Corporation for next year. Kendra forecasts that Reynolds will need $14 million to fund all of its positive-NPV projects, and her job is to determine how to raise the money. Reynolds's net income is $10 million, and it has paid a $4.00 dividend per share (DPS) for the past several years (1.0 million shares of common stock are outstanding); its shareholders expect the dividend to remain constant for the next several years. The company's target capital structure is 40% debt and 60% equity.
Suppose that Reynolds's management is firmly opposed to cutting the dividend; that is, it wishes to maintain the $4.00 dividend for the next year. Suppose also that the company is committed to funding all profitable projects and is willing to issue more debt (along with the available retained earnings) to help finance the company's capital budget. Assume the resulting change in capital structure has a minimal impact on the company's composite cost of capital, so that the capital budget remains at $14 million. What portion of this year's capital budget would have to be financed with debt? Round your answer to two decimal places.
Suppose once again that Reynolds's management wants to maintain the $4.00 DPS. In addition, the company wants to maintain its target capital structure (40% debt, 60% equity), and its $14 million capital budget. What is the minimum dollar amount of new common stock the company would have to issue in order to meet all of its objectives? Round your answer to the nearest dollar.
Now consider the case in which Reynolds's management wants to maintain the $4.00 DPS and its target capital structure but also wants to avoid issuing new common stock. The company is willing to cut its capital budget in order to meet its other objectives. Assuming the company's projects are divisible, what will be the company's capital budget for the next year? Round your answer to the nearest dollar.
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current capital structure calls for 40 percent debt, 5 percent preferred stock, and 55 percent common equity. What is the initial weighted average cost of ..
Billy’s Exterminators, Inc., has sales of $607,000, costs of $314,000, depreciation expense of $66,000, interest expense of $43,000, a tax rate of 35 percent, and paid out $78,000 in cash dividends. What is the addition to retained earnings?
Linksus Tech is company that manufactures drill bits and screwdrivers. company should try to realize its current assets at the earliest to stay afloat.
A stock had returns of 18 percent, 11 percent, 17 percent, 14 percent, 19 percent, and -10 percent over the last six years. Required: (a) What is the arithmetic return for the stock? (b) What is the geometric return for the stock?
In April 2015, Emma acquired a machine for $60,000 for use in her business. The machine is classified as 7-year property. Emma does not expense the asset under Sec. 179. Emma's depreciation on the machine this year is?
You estimate that the market risk premium is 8%, the size premium is 2%, the book-to-market premium is 2%, and the risk free rate is 1.6%. All of these expected returns are APR rates compounded annually. You believe that Whole Foods has a market beta..
Why is time value analysis important to healthcare financial management? - Why is there a "time value" to money?
Heather has saved about $10,000 in cash. She also went and met with a local bank and they are willing to loan her $12,000 at 6% interest for 5 years to get her business started. The bank will require a first claim on any remaining merchandise if the ..
Koy Corporation's 5-year bonds yield 8.00%, and 5-year T-bonds yield 5.15%. What is the default risk premium (DRP) on Koy's bonds?
What is the present value of a perpetuity making quarterly payments in arrears in the amount of $10,065 per quarter, and the appropriate annual rate of interest is 12.4%?
An investment will pay $100 at the end of each of the next 3 years, If other investments of equal risk earn 12% annually, what is its present value?
Compute the value of acquisition using the APV method, assuming Friendly will maintain a constant debt-equity ratio for the acquisition.
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