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A company maintains the following capital structure in its financial statements: Detail Amount Long-term bonus $39,200 Long-term loans $24,000 Preferred Shares $14,240 Ordinary Stock $27,840
A company maintains the following capital structure in its financial statements:
Detail | Amount |
---|---|
Long-term bonus | $39,200 |
Long-term loans | $24,000 |
Preferred Shares | $14,240 |
Ordinary Stock | $27,840 |
Retained Earnings | $24,320 |
Management has established that the sources of financing for its potential investments are: The bonds were priced at even value, with an interest rate of 17% over a 5-year term; but for the new the issue would be traded at a 5% discount. Legal and placement expenses are 5% of the nominal value. 5-year bank loan with a rate of 18% payable with a level installment. Legal expenses and formalization are 5% of the loan amount. The preferred shares are currently traded at a discount of 8% of their nominal value and must cover 5% legal and placement expenses. They pay a dividend of 15%. The normal price of common shares is $7.16 each. The company paid $1 of dividend for each share. The company's profits have grown at a rate of 5%, maintaining the same dividend policy. The company will use the retained earnings The company knows that a new issuance of common shares would entail an expense for services of 5% market placement. The company admits that the financing of new investments will follow the current book structure. The company's income range qualifies within the 20% tax rate. The Research department reports the following investment opportunities:
Project | Investment | IRR - Internal Rate of report |
---|---|---|
Project A | $56,000 | 17.00% |
Project B | $40,000 | 18.50% |
Project C | $32,000 | 22.00% |
Project D | $64,000 | 24.30% |
1. Calculate the cost (k%) after taxes of each of the funding sources. 2. Calculate the Weighted Average Cost of Capital (Marginal Cost of Capital) of the firm. Interpret your answer. 3. Determine the optimal budget amount. 4. What projects should the company develop and why?.
Thank you so much for your help!!, the solution in excel(screenshots) would be very helpful.
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