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(Weighted average cost of capital) The target capital structure for QM Industries is 45% common stock, 6% preferred stock, and 49% debt. If the cost of common equity for the firm is 17.9%, the cost of preferred stock is 10.6%, the before-tax cost of debt is 8.9%, and the firm’s tax rate is 35%, what is QM’s weighted average cost of capital? QM’s WAAC is _%? 2).(Weighted average cost of capital)Crypton Electronics has a capital structure consisting of 45% common stock and 55% debt. A debt issue of $1,000 par value, 6.1% bonds that mature in 15 years and pay annual interest will sell for $980. Common stock of the firm is currently selling for $29.76 per share and the firm expects to pay a $2.29 dividend next year. Dividends have grown at…show more content…
Initially, the corporation will operate in the southern region of Tennessee, Georgia, North Carolina, and South Carolina. A small group of private investors in the Atlanta, Georgia area is interested in financing the startup company and two financing plans have been put forth for consideration: • Plan A is an all-common-equity structure in which $2.4 million dollars would be raised by selling common stock at $10 per common share. • Plan B would involve the use of financial leverage. $1.4 million dollars would be raised by selling bonds with an effective interest rate of 11.3% (per annum), and the remaining $1.0 million would be raised by selling common stock at the $10 price per share. The use of financial leverage is considered to be a permanent part of the firm’s capitalization, so no fixed maturity date is needed for the analysis. A 35% tax rate is deemed appropriate for the analysis. A). Find the EBIT indifference level associated with the two financing plans. The EBIT indifference level associated with the two financing plans is $_? (Round to the nearest dollar.) B). A detailed financial analysis of the firm’s prospects suggests that the long-term EBIT will be above $344,000 annually. Taking this into consideration, which plan will generate the higher EPS? Complete the segment of the income statement for Plan A below. (Round income statement amounts to the

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