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LCI has the following capital structure, which it considers to be optimal: debt 25%, preferred stock 15% and common stock 60%. LCI's tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. LCI paid a dividend of $3.70 per share last year (Do) and its stock is currently selling at $60 share. Ten year Treasury bonds yield 6%, the market risk premium is 5%, and LCI's beta is 1.3. The following terms would apply to all new security offerings:
Preferred: New preferred could be sold to the public at a price of $100 share, with a dividend of $9. Flotation costs of $5 share would be incurred. Debt: Debt could be at an interest rate of 9%. Common: New common equity will be raised only by retained earnings.
a. Find the component cost of debt, preferred stock and equity.
b. What is the WACC?
Martin and Sons (M and S) currently is an all equity firm with 64,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $86,000. How many of your shares of stock in M and S must you sel..
Susan is beginning to plan college savings accounts for her two children. Her son Bobby is 8 and will begin college in 10 years when he turns 18. Her daughter Mallory is 2 and will begin college in 16 years when she is 18.
Executive Summary: State the purpose of the report and describe the major points of the report. Service and/or Equipment Description: This section should be at least one page.
The Arnold National Bank has a bond portfolio that consists of bonds with 5 years to maturity and a 9% coupon rate. These bonds are selling in the market for $1126. Coupon payments are made annually on this bond. What is the yield to maturity on thes..
Epley Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent. The expected return on the market is 13 percent, and Treasury bills are yielding 4.5 percent. The most recent st..
Write a memo to your supervisor explaining the cash conversion cycle at your company, a manufacturer of plastic toys. Be sure to address the following: Material ordering costs, Labor costs, Credit sales (accounts receivables), Accounts payable and wa..
Suppose you invest $101 in a bank account, and five years later it has grown to $138.64. What APR did you receive, if the interest was compounded semi-annually? ___%. What APR did you receive if the interest was compounded monthly?
Consider the following simplified financial statements for the Fire Corporation (assuming no income taxes): Income Statement Balance Sheet Sales $ 33,600 Assets $ 24,350 Debt $ 6,850 Costs 27,800 Equity 17,500 Net income $ 5,800 Total $ 24,350 Total ..
Which of the following is an appropriate goal of the firm?
The interest rate on a five-year Treasury bonds is 3.1 percent, the rate on six-year T-bonds is 2.9 percent, and the rate on seven-year T-bonds is 2.6 percent. Using the expectations theory, compute the expected one-year interest rates in (a) Year 6 ..
An interest rate is 7% per annum when expressed with annual compounding. What is the equivalent rate with continuous compounding?
Capstone Marketing Group has total assets of $6,348,000, sales of $3,429,945, and net income of $850,000. The company expects its sales to grow by 12 percent next year. All assets and costs (including taxes) vary directly with sales, and the firm exp..
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