Find coleman''s overall or weighted average

Assignment Help Corporate Finance
Reference no: EM1315814

Computation of cost of capital ignoring the floatation costs - WACC.

Cost of capital Coleman Technologies is considering a major expansion program that has been proposed by the company's information technology group. Before proceeding with the expansion, the company must estimate cost of capital. Assume that you are an assistant to Jerry Lehman, the financial vice president. Your first task is to estimate Coleman's cost of capital. Lehman has provided you with the following data, which he believes may be relevant to your task.

1) The firm's tax rate is 40 percent.

2) The current price of Coleman's 12 percent coupon, semiannual payment, no callable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

3) The current price of the firm's 10 percent, $100 par value, quarterly dividend, perpetual preferred stock is $111.10.

4) Coleman's common stock is currently selling for $50 per share. Its last dividend (D_0) was $4.19, and dividends are expected to grow at a constant rate of 5 percent in the foreseeable future. Coleman's beta is 1.2, the yield on T-bonds is 7 percent, and the market risk premium is estimated to be 6 percent. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 4 percent.

5) Coleman's target capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity.

 What is Coleman's overall, or weighted average, cost of capital (WACC)? Ignore flotation costs.

Reference no: EM1315814

Questions Cloud

The inflection points and global extrema : The inflection points and global extrema.
Analysis of variances in cost of common equity : Analysis of variances in cost of common equity and cost of retained earnings and Describe in words why new common stock has a higher cost than retained earnings.
Estimate all the stationary points : Estimate all the stationary points
Estimate of cost of capital with target capital structure : Estimate of Cost of Capital with target capital structure mix of debt and equity - Evaluate your final estimate for rs?
Find coleman''s overall or weighted average : Computation of cost of capital ignoring the floatation costs - WACC and Find Coleman's overall, or weighted average, cost of capital (WACC)? Ignore flotation costs.
How many ties and scarfs should the firm : Computation of quantity to obtain required profit per process - How many ties and scarfs should the firm make to maximize its profit if they obtain $3?
Efficiency ratio and cost reduction target : Overheads, efficiency ratio, cost reduction target - Multiple choice - activity-based costing analysis of one of its best-selling toys
Identifying local maximum, local minimum : Identifying local maximum, local minimum.
Analysis the graph of the derivative : Analysis the graph of the derivative.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Impact of the global economic crisis on business environment

This paper reviews the article of ‘the impact of the global economic crisis on the business environment' that is written by Roman & Sargu (2011).

  Explain the short and the long-run effects on real output

Explain the short and the long-run effects on real output, price, and unemployment

  Examine the requirements for measuring assets

Examine the needs for measuring assets at fair value in accounting standards

  Financial analysis report driven by rigorous ratio analysis

Financial analysis report driven by rigorous ratio analysis

  Calculate the value of the merged company

Calculate the value of the merged company, the gains (losses) to each group of shareholders, NPV of the deal under different payment methods. Synergy remains the same regardless of payment method.

  Stock market project

Select five companies for the purpose of tracking the stock market, preparing research on the companies, and preparing company reports.

  Write paper on financial analysis and business analysis

Write paper on financial analysis and business analysis

  Intermediate finance

Presence of the taxes increase or decrease the value of the firm

  Average price-earnings ratio

What is the value per share of the company's stock

  Determine the financial consequences

Show by calculation the net present value for the three alternatives (no education, network design certification, mba). Also, according to NPV suggest which alternative you advise your friend to choose

  Prepare a spread sheet model

Prepare a spread sheet model for the client that determines NPV/IRR with and without tax.

  Principles and tools for financial decision-making

Principles and tools for financial decision-making. Analyse the concept of corporate capital structure and compute cost of capital.

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