EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 15, Problem 10P
a.
Summary Introduction
To determined: Finance the expansion with externally raised equity.
b.
Summary Introduction
To determined: Finance the expansion with 50% externally and 50% internally generated equity. This will necessiate a dividend cut for this year.
c.
Summary Introduction
To determined: The various financing alternatives with reference to their effects on the dividend policy and common stock values of the company.
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Tangshan Mining Company must choose its optimal capital structure. Currently, the firm has a 40 percent debt ratio and the firm expects to generate a dividend next year of $4.89 per share and dividends are grow at a constant rate of 5 percent for the foreseeable future. Stockholders currently require a 10.89 percent return on their investment. Tangshan Mining is considering changing its capital structure if it would benefit shareholders. The firm estimates that if it increases the debt ratio to 50 percent, it will increase its expected dividend to $5.24 per share. Because of the additional leverage, dividend growth is expected to increase to 6 percent and this growth will be sustained indefinitely. However, because of the added risk, the required return demanded by stockholders will increase to 11.34 percent. Determine the value per share for Tangshan Mining under both the current and proposed capital structure ?
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Chapter 15 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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