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c) Calculate the cost of ordinary shares for each capital structure.

c) Calculate the cost of ordinary shares for each capital structure.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 5P
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c)  Calculate the cost of ordinary shares for each capital structure. 

 

Mentone Global Corporation (MGC) is attempting to evaluate two alternative capital structures – X and Y. The following table shows the two structures along with relevant cost data. The company is subject to a 35% tax rate. The risk-free rate is 4% and the market return is currently 9%. Item ($Million). Debt Y 25 60 Preferred shares Ordinary shares Total capital 15 75 25 100 100 Debt (Yield to maturity) Preferred equity dividend Preferred equity (Price) Ordinary shares beta 6.50% $1.80 5.00% $18.00 0.75 1.5
Transcribed Image Text:Mentone Global Corporation (MGC) is attempting to evaluate two alternative capital structures – X and Y. The following table shows the two structures along with relevant cost data. The company is subject to a 35% tax rate. The risk-free rate is 4% and the market return is currently 9%. Item ($Million). Debt Y 25 60 Preferred shares Ordinary shares Total capital 15 75 25 100 100 Debt (Yield to maturity) Preferred equity dividend Preferred equity (Price) Ordinary shares beta 6.50% $1.80 5.00% $18.00 0.75 1.5
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