cost of capital, Financial Management

AThe 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.sk question #Minimum 100 words accepted#
Posted Date: 11/3/2014 9:19:05 AM | Location : Ghana







Related Discussions:- cost of capital, Assignment Help, Ask Question on cost of capital, Get Answer, Expert's Help, cost of capital Discussions

Write discussion on cost of capital
Your posts are moderated
Related Questions
Q. Briefly explain What is TREM Card? 1. As per National and international regulations, the drivers of vehicles carrying hazardous goods should have the documentation outlining

Gross dividend At the ending of the financial year companies will announce the profits or losses that they have earned and a figure for net profit after tax. A company is able

Q. Incorporation of the Risk in Investment Proposal? Incorporation of the Risk in Investment Proposal: - As stated previous risk is involved in every capital budgeting decision

Q. Describes Working Capital. Briefly describe the techniques utilized in making working capital forecast or Estimating Working Capital Requirements? Ans:- Meaning of Wo

Revenues Revenues are the gross income received before any deductions for discounts, expenses, returns, and so on. It is also called sales in most organization. A much less c

What are the primary requirements for a successful JIT inventory control system? For a JIT system to be victorious the supplier must be willing and able to deliver materials im

SCOPE OF FINANCE FUNCTIONS The functions of Financial Manager can generally be sub-divided into two: The Routine functions and the Managerial Functions. Managerial Finance F

What are the main classes of institutions that issue bonds in the USA? There are three major classes of institutions which issue bonds in the USA: national governments, local g

Profit maximization Traditionally, this was considered to be the major goal of the firm. Profit maximization refers to attaining the maximum possible profits throughout the yea

the following information related to sun ltd.paid-up capital-1000000. earnings of the co-100000. dividend paid-80000. price-earning ratio(pie)-20. no of equity shares-100000.find o