Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond. C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share. D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23. E. Executive Consultants, Inc. has a tax liability of 35%. Problems: You must submit the procedure and all the calculations. 1. Determine the capital structure of Executive Consultants, Inc. 2. Calculate the cost of debt. 3. Calculate the cost of preferred equity.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Consider the following facts to solve problems 1 through 5.
A. The capital for investment of Executive Consultants, Inc. is as follows:
|
Sources of capital |
Capital |
|
Debt (corporate bonds) |
$4,100,000 |
|
Prefferent shares |
$2,200,000 |
|
Common shares |
$2,800,000 |
B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.
C. The issue of
D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.
E. Executive Consultants, Inc. has a tax liability of 35%.
Problems:
You must submit the procedure and all the calculations.
1. Determine the capital structure of Executive Consultants, Inc.
2. Calculate the cost of debt.
3. Calculate the cost of preferred equity.
4. Calculate the
5. Determine the weighted average cost of capital (WACC) for the firm.
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