Find the after-tax cost of debt-cost of preferred stock

Assignment Help Financial Management
Reference no: EM13847250

A company has a capital structure of 45% debt, 5% preferred stock and 50% common equity.

(a) The company can obtain unlimited debt at an interest rate of 10%. The marginal tax rate is 35%. Find the after-tax cost of debt.

(b) Preferred stock carries a dividend of $14 and currently sells for $120. Flotation cost on preferred stock is 10 pounds per share. What is the cost of preferred stock?

(c) Their current stock price is $25. The next dividend is expected to be $2.56 and growth is constant at 8%. If new common stock is issued, it will have a flotation cost of 10%. Find the cost of retained earnings and the cost of issuing new common shares.

(d) If the net income is expected to be $1 600 000, and the company's policy is to pay 50% of net income for dividends, what is the break point caused by using all of retained earnings?

(e) Find the WACC using retained earnings and the WACC when new equity is issued.

Reference no: EM13847250

Questions Cloud

Finding the required interest rate : Your parents will retire in 25 years. They currently have $300,000, and they think they will need $1,100,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
Time to reach a financial goal : You have $34,211.54 in a brokerage account, and you plan to deposit an additional $4,000 at the end of every future year until your account totals $270,000. You expect to earn 10% annually on the account. How many years will it take to reach your goa..
Estate taxes on large retirement plan balance : Estate Taxes on Large Retirement Plan Balance: Dr. Norma, Dr. Norma is 68. She has a $10 million IRA, a home worth $2 million and few other assets. She wants to leave all her assets to her three children, and save taxes
What will be the companys return on equity : Midwest Packaging's ROE last year was only 6%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 40%, which will result in annual interest charges of $517,000. Under these conditions, the tax rate will be ..
Find the after-tax cost of debt-cost of preferred stock : The company can obtain unlimited debt at an interest rate of 10%. The marginal tax rate is 35%. Find the after-tax cost of debt. Preferred stock carries a dividend of $14 and currently sells for $120. Flotation cost on preferred stock is 10 pounds pe..
Discuss the possible challenges faced by sahara : Discuss the possible challenges faced by SAHARA and management's responsibility in overcoming - Competitive advantage is the goal of strategic positioning.
Modified accelerated cost recovery system : The following facts are presented on an opportunity to invest in Machine A: Cost of equipment is $200,000. The machine has an expected 4-year useful life; it will be depreciated according to the 3-year Modified Accelerated Cost Recovery System (MACRS..
Western hydra systems makes panel milling machine : Western Hydra Systems makes a panel milling machine with a 2.7-m-diameter milling head that emits low vibration and processes stress-relieved aluminium panels measuring up to 6000 mm long. The company wants to borrow money for a new production/wareho..
Discuss the benefits provided by network modeling : Discuss the benefits provided by network modeling

Reviews

Write a Review

Financial Management Questions & Answers

  Annualized rate of return for your recommended investment

An exchange dealer has $1 million for a short-term money market investment. That is, he wants minimal risk in his investment, but he still wants to maximize the available return. Given the following market rates in the U.S. and London, what would you..

  What is the average real risk premium

You’ve observed the following returns on Doyscher Corporation’s stock over the past five years: –24.6 percent, 13.4 percent, 29.8 percent, 2.2 percent, and 21.2 percent. The average inflation rate over this period was 3.22 percent and the average T-b..

  In lowering the reserve requirement for banks

In lowering the reserve requirement for banks, the Fed hopes to:

  What is this stocks expected total rate of return

You buy a share of The Ludwig Corporation stock for $19.40. You expect it to pay dividends of $1.07, $1.16, and $1.2576 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $28.27 at the end of 3 years. Calculate the growth rat..

  Find internal rate of return

Find Internal Rate of Return. Initial outlay is $469,000. The project will produce the following after tax cash inflow

  Different kinds of utility that marketers can provide

What are the 4 different kinds of utility that marketers can provide? Give an example (not from the book) of a product that delivers each type of utility.

  The decline in treasury note yields

You want to invest in five-year U.S. Treasury notes. Unfortunately, you believe that yields will decline and prices will rise for five-year Treasury notes. Review futures in Treasury notes and set up a strategy so you can benefit from the rise in Tre..

  Clarify the NAL and maximum lease payment

The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.7 million in annu..

  The paradise shoes company has estimated its weekly tvc

the paradise shoes company has estimated its weekly tvc function from data collected over the past several months as

  Consider how economic conditions affect the default risk

consider how economic conditions affect the default risk premium. do you think the default risk premium will likely

  A stock price is currently 42 its stock price will be

a stock price is currently 42. its stock price will be either 45 or 38 one year from now. the risk-free rate is 5. a

  Investor holding stock as part of well diversified portfolio

Which measure of risk is most relevant for an investor holding only one investment? Which measure is most relevant for an investor holding the stock as part of a well diversified portfolio?

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