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Dillon labs have asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be m assured by using the following weights: 40% long term debt, 10% preferred stock, and 50% seemed common stock or both. The firm’s tax rate is 40%. Debt: The firm can sell its bonds for $980.00. a 10 year . 1,000 par value bond paying annual interest at a 10% coupon rate. A floatation cost of 3% of the par value is required in addition to the discount of $20.00 per bond. Preferred stock: eight percent preferred stock having a par value of $100can be sold for $65. The underwriters.
a) Calculate the specific cost of each source of financing Assume that the required return of retained earnings is equal to that on common stock.
b) If earning is available to common shareholders are expected to be $7 million what is the break point associated with the exhaustion of retained earnings?
c) Determine the weighted average cost of capital between zero and the break point calculated in part b above.
d) Determine the weighted average cost of capital just beyond the break point calculated in part b.
You bought a bond five years ago for $935 per bond. The bond is now selling for $980. It also paid $75 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond. (Do not round intermediate calcu..
The importance of a balanced capital structure and the problems which are associated with high levels of gearing.
Giant Enterprises’ stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over the..
Identifying and applying useful data and information and demonstrate logic to interpret data - Recognizing and discuss inferences and faulty logic.
After six months go by, you receive the first interest payment of $300. The annual market interset rate has declined to 5 percent and you decide to sell the bond. What is the bond's present value when you sell it? show your work.
Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million and will produce net cash flows of $29 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net ..
assume the market price of a 5-year bond for margaret inc. is 900 and it has a par value of 1000. the bond has an
Suppose the real rate is 3.4 percent and the inflation rate is 5.0 percent. What rate would you expect to see on a Treasury bill?
Size-up HCM using historical ratio analysis and a discussion of its business risk and financial risk and the Q1 tab reproduces HCM's financial statements and forecasts for your convenience.
What effect will reclassifying the investments have on the current ratio? Is Ross's true finan¬cial position stronger as a result of reclassifying the investments and evaluate Inspireds cash flows for the year.
The interest rate on one year treasury bonds is 1%, The rate on two year T-bonds is 0.9% and the rate on three-year T-bonds is 0.8%. Using the expectations theory compute the expected one year interest rates in (a) the second year (Year two only) and..
Find the following values for a lump sum assuming annual compounding: The future value of $500 invested at 8 percent for one year The future value of $500 invested at 8 percent for five years The present value of $500 to be received in one year when ..
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