Cost of Capital, Financial Management

Assignment Help:
The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional:
Debt 25%
Preferred Stock 15%
Common Equity 60%

NNBI''s expected net income this year is $34,285.72, its established dividend payout ratio is 30 percent, its tax rate is 40 percent, and investors expect earnings and dividends to grow at a constant rate of 9 percent in the future. NNBI paid a dividend of $3.60 per share last year, and its stock currently sells at per price of $60 per share.
NNBI can obtain new capital in the following ways:
Common: New common stock has a flotation cost of 10 percent.
Preferred: New preferred stock with a dividend of $11 can be sold to the public at a price of $100 per share. The flotation costs are $5 per share.
Debt:Debt can be sold at an interest rate of 12 percent.
assume that the cost of capital is constant beyond the retained earnings break point.
a. find the break point in the Marginal Cost of Capital.
b. Determine the cost of each capital structure component.
c. Calculate the weighted average cost of capital in the intervals between the break in the marginal cost of capital schedule.

Related Discussions:- Cost of Capital

Graphical depiction using duration to estimate price changes, The price vol...

The price volatility properties of bonds with the help of the graph of the price/yield relationship. Let us now, with the help of a graph, illustrate how duration estim

Bond's capital gain yield, A 10-year, 12% semi-yearly coupon bond with a pa...

A 10-year, 12% semi-yearly coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,050. The bond sells for $1,050. (Suppose that the bond has just bee

Problems using walter''s model, the following information related to sun lt...

the following information related to sun ltd.paid-up capital-1000000. earnings of the co-100000. dividend paid-80000. price-earning ratio(pie)-20. no of equity shares-100000.find o

Explain about the international finance, Explain about the International Fi...

Explain about the International Finance When money crosses international boundaries businesses,individualsand governments should deal with special kinds of problems. Every c

What is the cash flows from financing activities, Cash flows from financing...

Cash flows from financing activities: Items included in this heading are: Cash receipts Cash payments Cash  receipts  from  iss

When they analyze pro forma financial statements, What do financial manager...

What do financial managers look for when they analyze pro forma financial statements? After the pro forma financial statements are finished, financial managers examine the

Causes of risks, Q. Causes of Risks 1) Wrong decision of what to invest...

Q. Causes of Risks 1) Wrong decision of what to invest in. 2) Wrong timing of investments. 3) Nature of instruments invested such as shares or bonds, chit funds, benefit

Define the process of wealth maximisation, Define the process of Wealth Max...

Define the process of Wealth Maximisation Shareholders' wealth can be defined as total market value of all the equity shares of company. So when we talk about maximising wealth

State the traditional approach of financial management, Traditional Approac...

Traditional Approach of financial management Traditional approach to the scope of financial management refers to its subject matter, in academic literature in initial stages o

Financial position as assets, One of the well-known soccer clubs in Austral...

One of the well-known soccer clubs in Australia, Sydney, has made a decision to include its players on the club's statement of financial position as assets. These players are signe

Write Your Message!

Captcha
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