Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital?
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Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%.
If Global raises capital using 45% debt, 5%
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- Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? c) Evaluate the two finance options and identify which one they should choose? Assess the advantages and disadvantages of your choice?Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result. c) Evaluate the two finance options and identify…Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] Evaluate the two finance options and identify which…
- Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. f Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]TRD company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If TRD raises capital using 45%debt,5%preferred stock,and 50%common stock. What is their cost of capital? b)If TRD raises capital using 30%debt,5%preferred stock,and65%common stock.What is their cost of capital? c)Evaluate the two finance options and identify which one they should choose?
- Use the following information to answer the question(s) below. Nielson Motors is currently an all equity financed firm. It expects to generate EBIT of $20 million over the next year. Currently Nielson has 8 million shares outstanding and its stock is trading at $20.00 per share. Nielson is considering changing its capital structure by borrowing $50 million at an interest rate of 8% and using the proceeds to repurchase shares. Assume perfect capital markets. Nielson's EPS if they change their capital structure is closest to: OA. $2.30 O B. $2.90 O C. $2.50 O D. $2.00Suppose that you need to raise new financing for a large investment project. To keep your capital structure more-or-less close to the target, you decide to raise both debt and equity. Assume that the cost of floating a new bond issue will cost about 2% of the proceeds and new common stock will cost about 10% of the proceeds. you expect to pay $3.00 next year in dividends and grow them at roughly 2% for the foreseeable future. The firm’s tax rate is 21% you want to issue 20 year bonds with a $1,000 par value and a 9% coupon rate. you expect your stock to sell at$23 per share and your bonds to sell at par. What will the cost of equity and cost of debt (after-tax) be as a result of these new issues? What is the cost of capital if the target debt-equity ratio is 1.25?Kendra Brown is analyzing the capital requirements for Reynolds Corporation for next year. Kendra forecasts that Reynolds will need $15 million to fund all of its positive-NPV projects, and her job is to determine how to raise the money. Reynolds’s net income is $11 million , and it has paid a $2.00 dividend per share (DPS) for the past several years (1 million shares of common stock are outstanding); its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 30% debt and 70% equity. a. Suppose Reynolds follows the residual model and makes all distributions as dividends. How much retained earnings will it need to fund its capital budget? b. If Reynolds follows the residual model with all distributions in the form of dividends, what will be its dividend per share and payout ratio for the upcoming year? g. Now consider the case in which Reynolds’s management wants to maintain the $2.00 DPS and its target capital structure…
- Kendra Brown is analyzing the capital requirements for Reynolds Corporation for next year. Kendra forecasts that Reynolds will need $15 million to fund all of its positive-NPV projects, and her job is to determine how to raise the money. Reynolds’s net income is $11 million , and it has paid a $2.00 dividend per share (DPS) for the past several years (1 million shares of common stock are outstanding); its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 30% debt and 70% equity. d. Can Reynolds maintain its current capital structure, maintain its current dividend per share, and maintain a $15 million capital budget without having to raise new common stock? e. Suppose Reynolds’s management is firmly opposed to cutting the dividend; that is, it wishes to maintain the $2.00 dividend for the next year. Suppose also that the company is committed to funding all profitable projects and is willing to issue more debt (along…Kendra Brown is analyzing the capital requirements for Reynolds Corporation for next year. Kendra forecasts that Reynolds will need $15 million to fund all of its positive-NPV projects, and her job is to determine how to raise the money. Reynolds’s net income is $11 million , and it has paid a $2.00 dividend per share (DPS) for the past several years (1 million shares of common stock are outstanding); its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 30% debt and 70% equity. a. Suppose Reynolds follows the residual model and makes all distributions as dividends. How much retained earnings will it need to fund its capital budget? b. If Reynolds follows the residual model with all distributions in the form of dividends, what will be its dividend per share and payout ratio for the upcoming year? c. If Reynolds maintains its current $2.00 DPS for next year, how much retained earnings will be available for the…United Airlines is considering adding a new hub operation in Blue Lagoon. The finance group at UAL has gathered the following data. They have hired you as a Finance consultant to help them determine their cost of capital. Current stock sells at $30 per share with 30 million shares outstanding Debt of $1.8 billion was issued with a 4% coupon two years ago, and is now trading at 102 UAL pays an annual dividend of $2.40 this year, growing at 3% per year The current risk free rate is 2%, UAL's Beta is 1.5, the market return is 8% UAL pays a corporate tax rate of 21% What debt and equity weights will United use to calculate WACC? What is United's cost of debt? What is United's cost of common equity? What is United's WACC?