Imagine that you are the manager of a boat manufacturing company and you are considering the purchase
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Question:
Imagine that you are the manager of a boat manufacturing company and you are considering the purchase of new land in a year. The price of the land is $13,000. The company's capital structure is currently 52% debt, 13% preferred equity, and 35% common equity. They want to maintain the same proportion in any new financing and it would be as follows:
Source of funds | Amount | Cost in dollars | Cost after taxes |
Debt | $6, 760 | $473 | 7% |
Preferred capital | 1,690 | 169 | 10% |
common capital | 4,550 | 546 | 12% |
Total | 13,000 | 1,188 | 9.14% |
Before making the decision, you must determine what required rate of return will satisfy all providers of capital simultaneously. Answer the following question in Excel:
What is the minimum rate of return that will achieve this objective?
Related Book For
Essentials of Contemporary Management
ISBN: ?978-0077439477
5th edition
Authors: Gareth Jones, Jennifer George
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