Cost of Capital, Financial Management

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.
Posted Date: 11/11/2012 11:04:40 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
Explain the Advantagesand disadvantages of MBO Advantages of MBO Disadvantages of MBO Sale can be arranged quickly   Manag

Q. What are the Benefits of Holding Inventories? (1) Timing of Demand and Supply: - Requirement to hold inventory of raw materials arises because it isn't possible for a firm

Illustrate the audit plans Audit team must be sufficiently familiar and fully briefed by manager and have knowledge of the business or operation such that to be able to carry o

Explain the Types of Debt Securities There are many types of debt securities available in market.  The range includes Government Securities, Deep discount bonds, Deben

Discuss the process of  Maximise Profits Let's first look at profit maximisation.  Profit (also known as net income or earnings) canbe defined as the amount a business earns af

Following are return expectations on the S&P 500 index for the upcoming year with the corresponding probabilities: Expectation                                   Return

Demerits of Pay Back Method:- (i) It ignores the Cash Flows after the Pay Back Period: - The main shortcoming of this method is that it completely ignores all cash inflows subs

Q. Show the Accounting Profit Criteria? Accounting Profit Criteria: - Under accounting profit criteria there is merely one method for making capital expenditure decisions. This

Question : (a) Lucky Corporation is considering an investment in one of the two mutually exclusive proposals: Project A which involves an initial outlay of Rs 170,000 and Proj

What do you mean by Interest rate swap? Explain the various types of interest rate swap Meaning: It is an arrangement where by one party exchange one set of interest rate paymen