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EXTERNAL EQUITY FINANCING Coastal Carolina Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 45% with a $20 million investment in plant and machinery. The firm wants to maintain a 35% debt level in its capital structure. It also wants to maintain its past dividend policy of distributing 55% of last year’s net income. In 2016, net income was $5 million. How much external equity must Coastal Carolina seek at the beginning of 2017 to expand capacity as desired? Assume that the firm uses only debt and common equity in its capital structure.
Bourdon Software has 10.2 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 107.9 percent of par. What is the current yield on the bonds? What is the effective annual yield?
Quarles Industries had the following operating results for 2015: sales = $27,960; cost of goods sold = $19,360; depreciation expense = $4,940; interest expense = $2,190; dividends paid = $1,050. What is the operating cash flow for 2015? What is the c..
Broussard Skateboard's sales are expected to increase by 25% from $9.0 million in 2015 to $11.25 million in 2016. Its assets totaled $4 million at the end of 2015. Broussard is already at full capacity, so its assets must grow at the same rate as pro..
Daily enterprise is purchasing a $10.2 million machine. It will cost $47,000 to transport and install the machine. The machine has a depreciation life of five years using straight line depreciation and will have no salvage value. What are the increme..
Suppose you know that a company’s stock currently sells for $65.30 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield.
Owen Roberts is borrowing $10,000 for five years at 7 percent. Payments, which are made on a monthly basis, are determined using the add- on method. How much total interest will Owen pay on the loan if it is held for the full five-year term? How much..
Compute the future value of $5,000 deposited annually for 5 years, assuming a 10% annual interest rate compounded once a year. You may want to use the Excel function for computing the future value of an annuity or an FV table of factors. Explain the ..
The analyst should be careful when evaluating a ratio analysis that: a. the dates of the financial statements being compared are the same b. pre-audited statements are used c. neither a or b d. both a and b
A proposed project lasts 5 years and has an initial fixed asset investment of 2 million dollars, depreciated straight line to zero over the project life. Has an initial investment in networking capital of 200,000. Tax rate is 34%. There is a required..
Food Products, Inc. has cash of $2 million, short-term investments of $3 million, accounts receivable of $4 million, inventory of $5 million and plant, property, and equipment of $ $6 million. It’s current liabilities = $10 million and it’s total lia..
The executives of Garner-Wagner Inc. are considering a project that has an up-front cost of $3 million and is expected to produce a cash flow of $500,000 at the end of each of the next 5 years. The project's cost of capital is 10%. Based on the above..
Blue Bull, Inc., has a target debt-equity ratio of .85. Its WACC is 8.4 percent, and the tax rate is 35 percent. Required: (a) If the company’s cost of equity is 12.5 percent, what is its pretax cost of debt?
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