Question
1.Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 8 percent
1.Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 8 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 19 percent return but would cost 21 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firms capital structure.
a. Compute the weighted average cost of capital. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
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2.
Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $4.00 per share, and the current price of its common stock is $82 per share. The expected growth rate is 10 percent.
a. Compute the cost of retained earnings (Ke). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
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b. If a $4 flotation cost is involved, compute the cost of new common stock (Kn). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
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