Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1a. a business is raising money for a new project. It is looking for raise $40 million via bond. The planned bond has a 9.5%

1a. a business is raising money for a new project. It is looking for raise $40 million via bond. The planned bond has a 9.5% semi-annual coupon, $1000 par value, and a 18 years to maturity. After the fee paid to investment bank, the business will receive $965 for each bond.

What is the cost of debt for the new project?

1b. one year ago, the businesss earning report posted $9.5 EPS, and the business paid $3.6 dividend for each share. The ROE is 11%. Assume the retention ratio would stay the same for the next few years. What is the growth rate for the businesss common stock?

1c. Assume the businesss dividend will grow at the fix rate as last year in the future, and the current market value of stock is $58. Find the cost of common stock?

1d. a $85 million project is in evaluation, and the management decides to use both debt and common stocks to fund the project. After bonds are issued, the remaining balance of the $85 million capital budget will be financed with retained earnings (retained earnings belong to common stock). The marginal tax rate is 35%. Given the information above, what is the weighted average cost of capital for the coming year?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Derivatives And Risk Management

Authors: Robert Brooks, Don M Chance

9th Edition

1133190197, 978-1133190196

More Books

Students also viewed these Finance questions