Compute the after tax cost of debt

Reference no: EM13302150

The Ewing Distribution Company (EDC) is planning a $100 million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed with debt, preferred stock and equity. The firm's has 20,000 bonds with a $1,000 face value of current debt. The debt has a 12% coupon and 20 years remaining before maturity and is currently selling for $865. Ewing's marginal tax rate is 40%.

EDC has 100,000 shares of $50 par value $3.50 preferred stock outstanding which has a current market price of $42. Ewing's common stock paid a dividend of $2.10 per share this year and $2.00 the previous year. The current market price per share is $15, and the investment banking firm will charge a flotation fee of 10% if new shares are sold. The current risk-free rate is 7% and the market's estimated rate of return is 15%. Ewing's estimated beta is 1.2. Ewing expects to have $20 million of retained earnings available to finance the expansion.
Ewing's Balance Sheet
Debt $ 20,000,000
Preferred Stock 5,000,000
Common equity 75,000,000
$ 100,000,000

5. What component weights should you used to compute the WACC?

6. Compute the after tax cost of debt

Reference no: EM13302150

Questions Cloud

How to prepare a buffer solution for ammonia : How many grams of dry NH_4Cl need to be added to 1.60 of a 0.700 solution of ammonia, , to prepare a buffer solution that has a of 8.98. for ammonia is.

Advise both kevin and betty : You are required to advise both Kevin and Betty and M Pty Ltd as to any possible legal arguments they may have in connection with this dispute and as to who is likely to win the dispute.

Compute at what rate is thermal energy generated in the loop : You are given 65.000 cm of copper wire with diameter 7.0000 mm. compute At what rate is thermal energy generated in the loop

Determine the cell voltage : An atmospheric pressure, adiabatic SOFC is operated with the following inlet and exit conditions: Anode Out: 200 slpm of H2 and H2O at 900oC. Cathode In: 2700 slpm of air at 750oC

Compute the after tax cost of debt : What component weights should you used to compute the WACC?

Cyclohexane is burned in a calorimeter with a heat capacity : Write the balanced chemical equation that corresponds to this reaction. B) If 15g cyclohexane is burned in a calorimeter with a heat capacity of 230kJ/K, what temperature change do you expect

Determine the average surface temperature of the sun : Our Sun has a radius of 7 x 10^8 meters. From the amount of thermal energy we receive on Earth, determine the average surface temperature of the Sun

The overall reaction occurring in the fuel cell : The maximum amount of electrical energy that can be generated by a fuel cell can be determined from the ion (proton) flow. Every mole of molecular hydrogen (H2) fed to a fuel cell has the potential to generate two moles of electrons at the anode. Eve..

Determine what is max amount of cargo that can be carried : A small truck is to be driven down a 4% grade at 70mi/hr. The coefficient of road adhesion is 0.95, and it is known that the baking efficiency is 80% when the truck is empty and decreases by one percentage point for every 100 lb of cargo added.

User Account

All Pages