Bad Boys, Inc. is evaluating its cost of capital. Under consultation, Bad Boys, Inc. expects to issue new debt at par with a coupon rate of 8% and to issue new preferred stock with a $2.50 per share dividend at $25 a share. The common stock of Bad Boys, Inc. is currently selling for $20.00 a share. Bad Boys, Inc. expects to pay a dividend of $1.50 per share next year. An equity analyst foresees a growth in dividends at a rate of 5% per year. The Bad Boys, Inc. marginal tax rate is 35%. If Bad Boys, Inc. raises capital using 45% debt, 5% preferred stock, and 50% common stock, what is Bad Boys, Inc.’s cost of capital

Gentrix Inc. has two major sources of financing—common stock and long-term debt. They currently have 1,000,000 shares of stock outstanding, which are trading at a price of $20 per share. Two years ago, they issued $5,000,000 of 20-year debt to the general public at par value. The debt pays an annual coupon of 7%. The coupon is paid annually. Given their current capital structure, Gentrix has estimated that their cost of equity is 15%. Gentrix faces a marginal tax rate of 40%. It has been exactly two years since Gentrix issued their debt, and interest rates have increased. If the long-term debt is currently having a yield to maturity of 9%, what is the current value of the outstanding debt? Is it selling at a premium or discount to par value? (Remember that coupon payments of 7% are made annually rather than the semiannually.) Based on Gentrix’s current capital structure, what is the firm’s weighted average cost of capital? Assume that Gentrix currently has a capital structure that is…

Amiba PLC is looking for financial investments in the securities market. Two investment options are available in different securities: Bonds and ordinary shares.   Company A is issuing bonds having 12% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 each and will mature 10 years from now.   Company B is issuing ordinary shares and just paid a dividend of $6.50 per share. The Company Management agreed on the steady growth of 12% in dividends and earnings over the foreseeable future. The required rate of return for shares of this type is 18%.   Required: Compute the current value of company A bonds if the required rate of return is 10%

River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $300,000 of debt at an interest rate of 12% and use the proceeds to repurchase 30,000 shares at $10 per share. Profits before interest are expected to be $130,000.   What is the ratio of price to expected earnings for River Cruises before it borrows the $300,000? What is the ratio after it borrow?

West Central plc has been quoted on the London Stock Exchange for 10 years. Analysis of data from the last 10 years suggests that the company has an equity beta of 1.20. The company has 60 % of equity and 40 % of debt. The current market value of West Central plc is $ 100 million.  The company is going to undertake a project that has a similar beta to its average assets. The project is expected to be financed entirely by equity. As a result of this financing option and the undertaking of the project, the company will have 70 % of equity and 30 % of debt measured at market values. The risk-free rate is expected to be 5 % per annum and the market is expected to return 10 % per annum. West Central plc pays corporate tax at 40 %. The company's debt is thought to be risk-free. a ) Calculate the company's beta before the proposed project. b) Calculate the company's market value after the proposed project and the financing option. c) Calculate the Net Present Value of the project. d)…