Answered step by step
Verified Expert Solution
Question
1 Approved Answer
8. A company is studying the feasibility of a production capacity expansion plan and needs to estimate the capital cost. The relevant information about the
8. A company is studying the feasibility of a production capacity expansion plan and needs to estimate the capital cost. The relevant information about the estimated capital cost is as follows: (1) the company's existing long-term liabilities: non redeemable bonds with a face value of 1000 yuan and a coupon rate of 12% and interest paid every six months; The bond has five years to maturity, and the current market price is 1051.19 yuan; It is assumed that private placement is adopted when issuing long-term bonds, regardless of the issuance cost. (2) The company's existing preferred shares: permanent preferred shares with a par value of 100 yuan, a dividend rate of 10% and quarterly interest payment. Its current market price is 116.79 yuan. If the preferred stock is newly issued, it needs to bear the issuance cost of 2 yuan per share. (3) The company's existing common stock: the current market price is 50 yuan per share, the latest dividend paid is 4.19 yuan per share, the expected sustainable growth rate of dividend is 5%, and the beta coefficient of the stock is 1.2. The company is not prepared to issue new ordinary shares. (4) Capital market: the yield of national debt is 7%; The average market risk premium is estimated to be 6%. (5) The corporate income tax rate is 40%. (6) The ratio of known liabilities, preferred shares and common shares is 30%: 10%: 60%. Requirements: estimate various capital costs based on the above information
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started