Tartan Industries Currently has total capital equal to $10 million, has zero clebt, is in the 25% federal Plus state tex bracket, has a net income of $4 million, and distributes 40% of its earnings as dividends. Net income is expected to grow at aya!! Constant rate of 5% per year, 430,000 shares of stock are outstanding, and the current WACC is... 12.70% The company is considering a recapitalization where it will issue 33 million in debt and use the priceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the Is A recapitalization, its before -tax cost of debt will be 9% and its cost of equity will rise to 16.5%

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Mokoko Ltd. is considering a number projects and thus need to estimate its cost of capital in order to estimate their NPV.  The company’s current dividend is $2.25 per share, which has grown steadily at 6% each year for over a decade and is expected to continue doing so.  Its stock currently trades at $26 and there are 2 million shares outstanding.  The company’s 100,000 preferred shares trade at $22 and pay annual dividends of $3.  Cash and marketable securities on the company’s balance sheet total $30.5 million and the firm pays a tax rate of 30%.  Their existing long-term debt (face value of $100 million, semi-annual payments) pays a 9.5% coupon and has 12 years remaining before maturity.  Due to current conditions, the required rate of return (yield to maturity) on this debt is 11% and any new debt issuance would be required to offer the same yield to investors (there is no term premium for 1 year vs 12 year debt). What is Mokoko Ltd's Debt/Equity ratio? Assuming the firm wants to…

NHL Inc.’s current return on equity (ROE) is 20%, its current book equity per share is $50, and it pays out half of its earnings as dividends. Both the ROE and payout ratio will stay constant for the next two years. After year 2, competition will force ROE down to 8%, and NHL will increase its payout ratio to 75%. The cost of capital is 10%. What is NHL’s stock price today?

Zippy Pasta Corporation (ZPC) has a constant growth rate of 7 percent. The company retains 30 percent of its earnings to fund future growth. ZPC’s expected EPS (EPS1) and ks for various capital structures are given below.          Debt/Total Assets (%)                     Expected EPS (RM)                  ks (%)       20%                                                      $2.50                                15.0%       30                                                           3.00                                15.5       40                                                           3.25                                16.0       50                                                           3.75                                17.0       70                                                           4.00                                18.0   Required:   What is the optimal capital structure for ZPC? Show all of your working and explain your answer.  (Hints: Capital structure is at…

Richard Adkerson, CEO of Freeport McMoRan (ticker symbol: FCX), expects his company’s dividends to constantly grow by 3.4% annually. Today, one share of FCX is worth $30.50 and investors holding the stock require a return of 10.5%. Next year, FCX annual dividend will be: a. $2.09 b. $1.96 c. $2.17 d. $2.39 e. $2.24