Determine the marginal cost of capital schedule

Assignment Help Financial Management
Reference no: EM13927494

Penguin Industries, Inc., has a capital structure that currently consists of 40 per- cent debt and 60 percent common stock, which it considers optimal. Penguin can raise up to $60 million in long-term debt at a pretax cost of 10 percent. Above $60 million, the pretax cost of debt is expected to increase to 14 percent. The company's marginal tax rate is 40 percent. Its stock currently sells for $60 per share and has a beta of 1.20. The company is expected to pay a $3.60 per share dividend next year, which is expected to grow at a rate of 6 per- cent per year for the foreseeable future. Penguin expects to generate $180 million in retained earnings during the coming year. New shares can be sold to net the company $56 per share. Determine the marginal cost of capital schedule and the break points in the schedule for Penguin.

Reference no: EM13927494

Questions Cloud

What level of significance would she use in testing : A researcher wanted to test a new diabetes drug: What level of significance would she use in testing?
Mendel claimed proportion : Based on the result, is 787 offspring plants with long stems unusually low? What does the result imply about Mendel's claimed proportion of 3/4?
Prices at the local quick market : Prices at the local quick market (convenience store) will probably be lower than at the regional big box retailer (grocery store).
Mileage among the two-seater cars : The BMW Z8, Ferrari, and Lamborghini have notably low gas mileage among the two-seater cars in the table below). Find the five-number summary (median, the quartiles (first and third quartile), and the high and low extremes) of the city gas mileage..
Determine the marginal cost of capital schedule : New shares can be sold to net the company $56 per share. Determine the marginal cost of capital schedule and the break points in the schedule for Penguin.
Increase productivity and long-run growth : Are there circumstances in which it might be possible that deficits could increase productivity and long-run growth?
Quantitative variable the telephone number of individual : An example of a quantitative variable is the telephone number of an individual. If we examine some of the population measurements, we are conducting a Sample of the population.
Write a matlab script using the randn command : Write a Matlab script using the "randn" command to generate a vector of 10,000 random numbers that are normally distributed around zero, with a variance of 1. Use the "hist" command to plot a histogram of these data, specifying 50 bins.
Chasing chipmunks in the front yard : The author's cat enjoys chasing chipmunks in the front yard. In this game, the cat sits at one edge of a yard that is w = 29 m across (see figure), watching as chipmunks move toward the center.

Reviews

Write a Review

Financial Management Questions & Answers

  How can leasing allow a firm to effectively depreciate land

How can leasing allow a firm to effectively "depreciate" land? What effect does leasing have on the stability of a firm's reported earnings?

  Bank account to cover college expenses

Beginning three months from now, you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses over the next 4 years. The account pays 1.25 percent interest per quarter. How much do you need to have in your acco..

  Calculate the operating cash flows for the new project

Assume that a new project will annually generate revenues of $2,300,000 and cash expenses (including both fixed and variable costs) of $700,000, while increasing depreciation by 170,000 per year. In addition the firm’s tax rate is 33%. Calculate the ..

  Systemic risk evaluates the probability

Systemic risk evaluates the probability and extent of negative consequences to the larger body. For example, the government has a record of intervening in the event of a probable bank failure; the government’s larger concern is the negative impact on..

  Invest in a portfolio containing stock

You have $102,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 11 percent and that has only 80 percent of the risk of..

  Calculate the variances and the standard deviations

The rate of return on Cherry Jalopies, Inc., stock over the last five years was 11 percent, 11 percent, -4 percent, 3 percent, and 7 percent. Over the same period, the return on Straw Construction Company’s stock was 16 percent, 16 percent, -5 percen..

  Market risk premium and real risk-free rate

Calculate the required rate of return for Manning Enterprises assuming that investors expect a 4.3% rate of inflation in the future. The real risk-free rate is 1%, and the market risk premium is 4%. Manning has a beta of 1.9, and its realized rate of..

  NPV of the managers ability to grow through acquisition

Suppose a company has organic growth of 10% that doesn’t require investment. Current dividend is $4 and discount rate is 15%. If the share price is $200, what is the NPV of the managers’ ability to grow through acquisition?

  What will portfolios new beta be after these transactions

You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.25. You are considering selling $100,000 worth of one stock with a beta of 1.1 and using the proceeds to purchase anothe..

  Purchased the stock without margin

In the previous problem, suppose you sell the stock at a price of $62. What is your return? What would your return have been had you purchased the stock without margin? What if the stock price is $46 when you sell the stock?

  Brokerage account-time to reach financial goal

You have $60,701.28 in a brokerage account, and you plan to deposit an additional $3,000 at the end of every future year until your account totals $250,000. You expect to earn 11% annually on the account. How many years will it take to reach your goa..

  Expected return on the market-risk-free rate

A stock has a beta of 1.05, the expected return on the market is 12 percent, and the risk-free rate is 4 percent. What must the expected return on this stock be? (Show your work.)

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