Cost of Capital, Financial Management

Assignment Help:
The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional:
Debt 25%
Preferred Stock 15%
Common Equity 60%

NNBI''''s expected net income this year is $34,285.72, its established dividend payout ratio is 30 percent, its tax rate is 40 percent, and investors expect earnings and dividends to grow at a constant rate of 9 percent in the future. NNBI paid a dividend of $3.60 per share last year, and its stock currently sells at per price of $60 per share.
NNBI can obtain new capital in the following ways:
Common: New common stock has a flotation cost of 10 percent.
Preferred: New preferred stock with a dividend of $11 can be sold to the public at a price of $100 per share. The flotation costs are $5 per share.
Debt:Debt can be sold at an interest rate of 12 percent.
assume that the cost of capital is constant beyond the retained earnings break point.
a. find the break point in the Marginal Cost of Capital.
b. Determine the cost of each capital structure component.
c. Calculate the weighted average cost of capital in the intervals between the break in the marginal cost of capital schedule.

Related Discussions:- Cost of Capital

Cash management and inventory management, I am facing some problems in my a...

I am facing some problems in my assignment of Cash Management and Inventory Management. Can anybody suggest me the proper explanation for it?

State the traditional approach of financial management, Traditional Approac...

Traditional Approach of financial management Traditional approach to the scope of financial management refers to its subject matter, in academic literature in initial stages o

Assignment, Hi, what is your time limits on providing solutions

Hi, what is your time limits on providing solutions

What is capital budgeting, What is Capital Budgeting Capital Budgeting...

What is Capital Budgeting Capital Budgeting is probably the most financial decision for a firm. It relates to selection of an asset or investment proposal or course of action

Policy conflicts in debt and monetary management, Policy Conflicts in Debt ...

Policy Conflicts in Debt and Monetary Management: Co-ordination of operations is important so as to avoid differences in the policies of cash and debt management of the governm

Performance evaluation, Performance evaluation One can determine this b...

Performance evaluation One can determine this by comparing the cash flow from assets and cost of capital. 1. Cash flow from assets Cash flow from assets is calculated

Determine the financial structure of business risk, Determine the Financial...

Determine the Financial structure of business risk Financial structure shifts toward suppliers of funds recognize a more highly levered position increased financial risk associ

Margin trading, Margin Trading: Suppose an investor wants to buy 100 Re...

Margin Trading: Suppose an investor wants to buy 100 Reliance Energy shares, whose market price is Rs.500. This transaction requires Rs.50,000 but the investor has only Rs.30,0

Five cs of obtaining credit, Five Cs of Obtaining Credit The five ...

Five Cs of Obtaining Credit The five crucial parts lenders examine previously issuing credit include: 1. Character.    This is a calculation of the borrower's integrit

Write Your Message!

Captcha
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