Appropriate mix of capital sources for the firm

Assignment Help Financial Management
Reference no: EM131449132

As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm’s present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm’s capital structure as follows:

Source of Capital

Market Values

Common stock

$6,000,000

Preferred stock

$2,000,000

Bonds

$4,000,000

To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying 7% per year at the market price of $1,050. Preferred stock paying a $2.00 dividend can be sold for @25. Common stock for Ranch Manufacturing is currently selling for $55 per share and the firm paid a $3 dividend last year. Dividends are expected to continue growing at a rate of 5% per year into the indefinite future. If the firm’s tax rate is 30%, what discount rate should you use to evaluate the equipment purchase?

Reference no: EM131449132

Questions Cloud

The price of the boat is the same at both dealerships : Fatima wants to buy a boat that is available at two dealerships. The price of the boat is the same at both dealerships.
What is the value of an investment that will pay investors : What is the value of an investment that will pay investors 2,940 dollars per year for 7 years and will also pay investors an additional 9,150 dollars in 1 year
What is the quarterly interest rate on the loan : If she makes her first quarterly payment later today, then what is the quarterly interest rate on the loan?
What kind of deal did the running back scamper off with : what kind of deal did the running back scamper off with? Assume all payments other than the first $11 million are paid at the end of the year.
Appropriate mix of capital sources for the firm : Under the assumption that the firm’s present capital structure reflects the appropriate mix of capital sources for the firm,
Expected to generate fixed annual cash flows : What is the value of a building that is expected to generate fixed annual cash flows of 101,750 dollars every year
What is the present value of the annual cash flow : What is the present value of the annual cash flow that is expected in 6 years from today?
What is sarahs holding period return : Sarah purchased 100 shares of General Electric stock at a price of $61.66 three months ago. What is Sarah’s holding period return.
True regarding premium bonds : Which of the following are true regarding premium bonds?

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

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