need within 1 hour price is fix only excel work need
victoria.32
test.docxA firm has determined its optimal capital structure which is composed of the following sources and target market value proportions.
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Source of Capital |
Target Market Proportions |
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Long-term debt |
25% |
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Preferred stock |
10% |
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Common stock |
65% |
Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $980. A flotation cost of
$20 would be required in addition to the discount of $10.
Preferred Stock: The firm has determined it can issue preferred stock at $85 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share.
Common Stock: A firm's common stock is currently selling for $19 per share. The dividend expected to be paid at the end of the coming year is $1.74. Its dividend payments have been growing at a constant rate of 5 percent. It is expected that to sell, a new common stock issue must be underpriced $1 per share in floatation costs.
Additionally, the firm's marginal tax rate is 40 percent.
Required:
a. Determine the cost of the following sources of financing:
1. after tax cost of new debt
2. after tax cost of new preferred stock
3. after tax cost of new common stock
4. after tax cost of retained earnings
b. Determine the weighted average cost of capital (WACC) if the company issues new common stock.
#7
The Pete Rose Baseball Company provides you with the following income statement for the year ending December 31, 2015:
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Pete Rose Baseball Company Income Statement for year-end December 31, 2015 |
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Sales ($100 per unit) |
5,000,000 |
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Variable costs ($70 per unit) |
3,500,000 |
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Fixed Costs |
500,000 |
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EBIT |
1,000,000 |
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Interest Expense |
350,000 |
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EBT |
650,000 |
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Tax expense (40%) |
260,000 |
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EAT |
390,000 |
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Shares of Common Stock |
30,000 |
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EPS |
$ 13.00 |
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The Company asks for your help making some projections for 2016.
Required:
1. How many units are required for the company to reach its operating breakeven point?
2. Calculate the Company’s Degree of Operating Leverage (DOL), Degree of Financial Leverage (DFL), and its Degree of Total Leverage (DTL) based on its 2015 sales volume.
3. The Company expects sales to grow by 20 percent for year 2016. Calculate the expected EAT, and the EPS, for 2016 using your leverage calculations from part 2.
4. The Company is considering the purchase of 5,000 shares of its stock in 2016 at a price of $100 per share ($500,000 total cost). This acquisition will be financed by issuing additional long-term debt at an 8% interest rate. Calculate the company’s projected income statement for 2016 with the 20% sales increase and the new debt financing. Calculate its Degree of Total Leverage (DTL) for 2015 based on your income statement. What is the expected EPS for 2016 under these assumptions?
#8
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Curry Inc, is considering the purchase of a new machine to replace an existing machine. It would like your help to determine if they should replace the existing machine (Machine C) with a new machine (Machine (A). Machine C was purchased for $200,000 two years ago and has 8 years remaining on its originally estimated 10 year life and could be sold for $120,000 today if Machine A is purchased. |
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Machine A |
Machine C |
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Purchase price |
$ 300,000 |
$ 200,000 (2 years ago) |
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Estimated life (years) |
8 |
10 |
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Increased investment in working capital |
$ 25,000 |
$ - |
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Increased revenues ($ per year) |
$ 165,000 |
$ 105,000 |
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Increased costs ($ per year) |
$ 60,000 |
$ 50,000 |
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Salvage value at the end of its useful life |
$ 50,000 |
$ 5,000 |
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Tax depreciation |
Macrs (7 year life) |
Straight Line (10 year life) |
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Marginal tax rate |
30% |
30% |
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WACC |
14% |
14% |
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Required: |
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1 |
Calculate the relevant cash flows for an investment in Machine A (assuming the sale of Machine C). |
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2 |
Given your cash flows from part 1 above, calculate the a) payback period; b) NPV; and C) IRR. |
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3 |
Should the Company invest in Machine A? Explain. |
#9
Bryant Corporation., has a stockholders' equity account as shown below from its balance sheet dated December 31, 2015. The firm's common stock currently sells for $20 per share.
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Common stock ($3 par, 1,000,000 shares) |
3,000,000 |
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Paid-in-capital in excess of par |
11,000,000 |
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Retained earnings |
10,100,000 |
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Total Stockholder’s equity |
24,100,000 |
(1) What is the maximum dividend per share that Bryant can pay to its common shareholders?
(2) Recast the stockholders' equity accounts to show the following independent transactions:
(a) a 3 for 1 stock split of the common stock.
(b) a cash dividend of $1.50 per share.
(3) At what price would you expect Bryant’s stock to sell after
(a) the stock split?
(b) the cash dividend?
