ER ALL. PLEASE SHOW YOUR WORKING SOLUTIONS. 1) Based on current market values, Shawn Supply's capital structure is 30% debt, 20% preferred stock, and 50% common stock. When using book values, capital structure is 25% debt, 10% preferred stock, and 65% common stock. The required return on each component is: debt,10% before tax; preferred stock, 11%; and common stock,18%. The marginal tax rate is 35%. What rate of return must Shawn Supply’s earn on its investments if the value of the firm is to remain unchanged? 2) Plants Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Plants Corp.'s after-tax cost of debt is 5.25%, preferred stock has a c
ER ALL. PLEASE SHOW YOUR WORKING SOLUTIONS. 1) Based on current market values, Shawn Supply's capital structure is 30% debt, 20% preferred stock, and 50% common stock. When using book values, capital structure is 25% debt, 10% preferred stock, and 65% common stock. The required return on each component is: debt,10% before tax; preferred stock, 11%; and common stock,18%. The marginal tax rate is 35%. What rate of return must Shawn Supply’s earn on its investments if the value of the firm is to remain unchanged? 2) Plants Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Plants Corp.'s after-tax cost of debt is 5.25%, preferred stock has a c
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 4P
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ANSWER ALL. PLEASE SHOW YOUR WORKING SOLUTIONS.
1) Based on current market values, Shawn Supply's capital structure is 30% debt, 20%
preferred stock , and 50% common stock. When using book values, capital structure is
25% debt, 10% preferred stock, and 65% common stock. The required return on each
component is: debt,10% before tax; preferred stock, 11%; and common stock,18%. The marginal tax rate is 35%. What rate of return must Shawn Supply’s earn on its
investments if the value of the firm is to remain unchanged?
2) Plants Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000
of common equity. Plants Corp.'s after-tax cost of debt is 5.25%, preferred stock has a
cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Plants
Corp.'s weighted average cost of capital?
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