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

Differences between indirect costs and direct costs, a) Variable costs: Rem...

a) Variable costs: Remuneration of flight attendants, Meals and drinks onboard, Fuel. Fixed costs: promotions and Advertising, Remuneration of administrative staff and Airport c

Calculate the new interest rate and excel function pv, Continuing growth of...

Continuing growth of the company has required that we issue the company''s corporate debt soon. As you know, in 6 months we plan to issue $10 million worth of 20-year corporate bon

Evaluate alternative hedging strategies, Peak Inc. needs to order Canadian ...

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

Features of government securities, Features of government securities: ...

Features of government securities: Issuers The government securities are issued by the central government, state governments, and semi-government authorities like municipa

Approaches to financial management, mention the advantages and disadvantage...

mention the advantages and disadvantages of the traditional approach

Enumerate the securities and investment analysis, Enumerate the Securities ...

Enumerate the Securities and Investment Analysis Purchase of bonds, stocks and othersecurities involve analysis and techniques which are highly specialized. An investorshoul

What is functional benchmarking, Best practice or functional benchmarking ...

Best practice or functional benchmarking Compare an internal function to 'the best' however not necessarily an organisation in same industry for example compare administrati

Define terms proprietorship partnership and corporations, Briefly define th...

Briefly define the terms proprietorship , partnership , and corporation . A proprietorship is a business possessed by one person. Two or more people who unite together to

Reinvestment risk, Reinvestment risk is the risk involved in reinvesting th...

Reinvestment risk is the risk involved in reinvesting the proceeds received from the issuer against callable bonds. During falling interest rate periods, investor canno

Process of ambiguity - profit maximisation criterion, Process of Ambiguity ...

Process of Ambiguity - profit maximisation criterion One practical difficulty with profit maximisation criterion for financial decision making is that term-profit is a vagu

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