Reference no: EM13947857
Medical Research Corporation has been expanding its production capacity and research to introduce a new product line. Current plans call for spending $ 100 million in four projects of the same magnitude ($ 25 million each), but offer different performance. Project A is on proteins for blood clotting and has an expected return of 18%. Project B is related to a vaccine for hepatitis and includes an expected return of 14%. The C project, which is a cardiovascular compound, has expectations to win 11.8%, and D project, an investment of orthopedic implants, has the expectation of showing a 10.9% yield.
The company has $ 15 million in retained earnings. After a capital structure is reached with $ 15 million in retained earnings (in which the retained earnings account for 60% of funding), any additional equity financing should be channeled in the form of new common capital.
The common stock sold at a price of $ 25 per share and insurance costs have been estimated at $ 3 if the new shares are issued. The dividends for the following year will be $ 0.90 per share (D), and profits and dividends have consistently grown 11% per year.
The comparative performance of bonds has been hovering around 11%. The investment banker feels that the first $ 20 million of bonds could be sold so that changeover yield 11% while the additional debt may require a premium of 2% and sold so that changeover yield 13%. The corporate tax rate is 30%. The debt represents 40% of the capital structure.
e. What will be the marginal cost of the capital immediately after that point?
|
A random sample of size is taken from a population
: A random sample of size 70 is taken from a population that has a variance of 49.The sample mean is 90.4.What is the point estimate of µ? Construct a 94% confidence interval for µ.
|
|
Betas are exact measurements
: A proposed investment must earn at least as much as the ______ if it is to be deemed acceptable. Betas are exact measurements. If a stock has a very low beta, it is most apt to maintain that beta in the future. The expected future risk premium is eas..
|
|
Creative use of bankruptcy laws to gain
: Donald Trump has been proud of the fact that he uses bankruptcy laws to his advantage and a few years ago United Airlines engaged in the creative use of bankruptcy laws to gain what the CEO called a ‘comparative advantage’ over other airlines. Invest..
|
|
Registration statement for a new securities issue
: Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue? Select one: a. The red herrings can now be distributed as the distribution was awaiting t..
|
|
What will be the marginal cost of the capital immediately
: Medical Research Corporation has been expanding its production capacity and research to introduce a new product line. Current plans call for spending $ 100 million in four projects of the same magnitude ($ 25 million each), but offer different perfor..
|
|
What return on equity do investors seem to expect for a firm
: What return on equity do investors seem to expect for a firm with a $55 share price, an expected dividend of $5.50, a beta of .9 and a constant growth rate of 5.5%? A. 9.00% B. 10.00% C. 13.95% D. 15.50%
|
|
What is the annual cost of the inventory system
: Rusk Corporation sells 185,000 gallons of paint annually at several retail outlets. The ordering cost per order is $75, and its cost of capital is 10%. The storage and handling cost for paint is $2 per year, based on average inventory. Find the optim..
|
|
Calculate the optimal size of an order
: Hull Baking Company uses 250,000 lb of sugar annually in its cakes and pastries. The company can order the sugar in 100 lb bags, at the cost of $19.50 per bag, delivered. The cost of preparing and sending an order is $50. The storage and handling cos..
|
|
Using the concept of up-regulation and down regulation
: Using the concept of Up-regulation and down regulation explain why individuals sometimes have to increase their medications to receive the same effects?
|