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Your firm has a market value weighted target capital structure of $2,000,000 in debt outstanding, $500,000 in preferred stock, and $10,000,000 in common stock which it is currently preparing to issue. The firms' bonds are outstanding with 10 years left till maturity and are currently trading at a discount price of $947. The bonds pay a semiannual coupon at 6% annual rate, and have a par value of $1,000. The firm has preferred stock with a par value of $100 on which it pays a 6% dividend. Right now, the preferred stock is selling at $96 per share. The firm can issue their new common stock at a $40 per share. The new common stock will pay a dividend of $2 per share, and the dividends are expected to grow at 4% indefinitely. Goldman Sachs is in charge of preparing the stock issuance, and will charge the firm 10% to do so. Tax rate is 40%.
a) What is the before tax component cost of debt for the firm?
b) What is the component cost of common equity for the firm?
c) What is the component cost of preferred equity for the firm?
d) Find the WACC.
Decker Tires’ free cash flow for the current year equals $1.32 million. Analysts expect the company's free cash flow to grow by 30% next year, by 10% in the year after that, and at a constant rate of 5% thereafter. The WACC for this company 9.00%. De..
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Assume that you have just been hired by Adams, Garitty, and Evans (AGE), a consulting firm that specializes in analyses of firms’ capital structures. Your boss has asked you to examine the capital structure of Campus Deli and Sub Shop (CDSS), which i..
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If you require an effective annual return of 10 percent on this investment, how much will you pay for the contract today?
A firm wishes to maintain an internal growth rate of 9 percent and a dividend payout ratio of 40 percent. The current profit margin is 6.2 percent and the firm uses no external financing sources. What must total asset turnover be?
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Two investments have the same expected returns: What is the before tax IRR on each investment?
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