Optimal Capital Budgeting, Finance Basics

Capital Corporation, which has a target capital structure of 40 percent debt and 60 percent common equity, is evaluating an expansion project with an 8.5 percent IRR. The project costs $6 million, and any portion of it can be purchased. The firm expects to retain $4.8 million of earnings this year. It can raise up to $2 million in new debt with rd=6%; all debt above $2 million will have rd=8%;rs=11%; and re=14% for any amount of new common stock that is issued. If the firm''s marginal tax rate is 35%, what is its optimal capital budget?
Posted Date: 10/16/2012 2:36:31 PM | Location : United States







Related Discussions:- Optimal Capital Budgeting, Assignment Help, Ask Question on Optimal Capital Budgeting, Get Answer, Expert's Help, Optimal Capital Budgeting Discussions

Write discussion on Optimal Capital Budgeting
Your posts are moderated
Related Questions
Holding Company Such holds more than a half of the equity share capital of other company or is a member and or controls a big percentage of Directors of the Board of one or mo

Food and Beverages Rooms, Restaurants and Other Services Other Income Total $ $ $ Sale

Example of Miller-Orr Model XYZ's management has put the minimum cash balance to be equivalent to Sh.10, 000. The standard deviation of daily cash flow is of Sh.2, 500 and the

If Metropolis Healthcare Systems have 1,150,000 in cash. How long will it take them to accumulate 2,000,000 in cash? Assume an interest rate of 5%..

MM Dividend Irrelevance Theory Such was advanced via Modigliani and Miller in 1961.  The theory asserts to a firm's dividend policy has no effect on cost of capital and on its

For each of the financial statement ratios listed below calculate the ratio for the current year and for the prior year. (Note that in most textbooks, some of the ratios call for a

What is Nominal and Real Return While nominal return is the return in nominal rupees, real return is equal to the nominal return adjusted for changes in prices i.e. rate of

Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Information Signaling Effect Theory Advanced via Stephen Ross in year 1977, He argued such in an inefficient market; management can utilize dividend policy to signal significa

Type of Partnerships There are two main kinds of partnerships. Namely: Ordinary Partnership - An ordinary partnership is one in which all members have unlimited liability.