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Contemporary Financial Management, Loose-leaf Version
14th Edition
ISBN: 9781337090636
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: South-Western College Pub
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Chapter 12, Problem 11P
Summary Introduction
To determine: The marginal cost of capital schedule.
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The Williams Company has a present capital structure (that it considers optimal) consisting of 30 percent long-term debt and 70 percent common equity. The company plans to finance next year’s capital budget with additional long-term debt and retained earnings. New debt can be issued at a coupon interest rate of 10 percent.The cost of retained earnings (internal equity) is estimated at 15 percent. The company’s marginal tax rate is 40 percent.Calculate the company’s weighted cost of capital for the coming year.
Sadaplast has a target capital structure of 65% common equity, 30% debt, and 5% preferred stock. The cost of retained earnings is 14%, and the cost of new equity is 15.5%. Sadaplast expects to have a net income of $85 million in the coming year. If the firm sells bonds, up to $25 million can be sold at par value to yield an after-tax cost of 5.4%. An additional $20 million of debentures could be sold to yield an after-tax cost of 7.0%. The after-tax cost of preferred stock financing is estimated to be 11%.
Sadaplast has a dividend payout ratio of 25%. What is Sadaplast's weighted Average cost of capital between the first and second break points?
Sadaplast has a target capital structure of 65% common equity, 30% debt, and 5% preferred
stock. The cost of retained earnings is 14%, and the cost of new equity is 15.5%. Sadaplast
expects to have a net income of $85 million in the coming year. If the firm sells bonds,
up to $25 million can be sold at par value to yield an after-tax cost of 5.4%. An additional $20 million of debentures could be sold to yield an after-tax cost of 7.0%. The after-tax cost of preferred stock financing is estimated to be 11%.
Sadaplast has a dividend payout ratio of 25%.
1. b) What is Sadaplast's weighted Average cost of capital between the first and second break points?
Chapter 12 Solutions
Contemporary Financial Management, Loose-leaf Version
Ch. 12 - Prob. 1QTDCh. 12 - Prob. 2QTDCh. 12 - Prob. 3QTDCh. 12 - Prob. 4QTDCh. 12 - Prob. 5QTDCh. 12 - Prob. 6QTDCh. 12 - Prob. 7QTDCh. 12 - Prob. 8QTDCh. 12 - Prob. 9QTDCh. 12 - Prob. 10QTD
Ch. 12 - Prob. 11QTDCh. 12 - Prob. 12QTDCh. 12 - Prob. 13QTDCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10PCh. 12 - Prob. 11PCh. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Prob. 23PCh. 12 - Prob. 24PCh. 12 - Prob. 26P
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