Last year Gator Getters, Inc. had $50 million in total assets. Management desires to increase its plant

Question:

Last year Gator Getters, Inc. had $50 million in total assets. Management desires to increase its plant and equipment during the coming year by $12 million. The company plans to finance 40% of the expansion with debt and the remaining 60% with equity capital. Bond financing will be at a 9% rate and will be sold at its par value. is currently selling for $50 per share, and flotation costs for new will amount to $5 per share. The expected next year for Gator is $2.50. Furthermore, dividends are expected to grow at a 6% rate far into the future. The marginal corporate tax rate is 34%. Internal funding available from additions to retained earnings is $4,000,000.
a) What amount of new must be sold if the existing is to be maintained?
b) Calculate the weighted marginal at an investment level of $12 million?
Common Stock
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Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
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