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aluation and Cost of Capital Assignment i Saved aluation and Help Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3

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aluation and Cost of Capital Assignment i Saved aluation and Help Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 35 profitability of capital budgeting projects. percent. Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the Historically, the corporation's earnings and dividends per share have increased about 5.6 percent annually and this should continue in the future. Northwest's common stock is selling at $66 per share, and the company will pay a $8.50 per share dividend (D1) estimated by its investment banker to be $4.00 for preferred stock. The company's $100 preferred stock has been yielding 10 percent in the current market. Flotation costs for the company have been The company's optimum capital structure is 35 percent debt, 15 percent preferred stock, and 50 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparative yields on bonds of equal risk to Northwest. Data on Bond Issues Issue Moody's Rating Price Yield to Maturity Utilities: Pacific Electric Power -7 1/4 2033 Aa2 $ 905.18 8.34% Southwest Bell-7 3/8 2035 Aa3 893.25 8.93 Virginia Power & Light-8 1/2 2032 A2 980.66 8.99 ences Industrials: Issac & Johnson-6 3/4 2033 Aaa Wholesale Department Stores-7 1/8 2033 A2 Hotel Corporation-10 2035 B2 900.24 980.92 1,045.10 8.35% 8.55 9.55 a. Compute the cost of debt, Kd. Mc Graw Hill Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Cost of debt % b. Compute the cost of preferred stock Q 4 2 80 F2 F3 #3 $ 4 < Prev 22 of 25 Next > MacBook Air F9 F10 DOO DOO AA DII DD F4 F5 F6 F7 F8 % d5 & 6 27 W E R T Y D F G H * 8 9 O 0 J K L P F11 GE + " [ { < ? Z X C V B N M S aluation and Cost of Capital Assignment Saved ences Mc b. Compute the cost of preferred stock, Kp. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Graw Hill Cost of preferred stock % c. Compute the cost of common equity in the form of retained earnings, Ke. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Cost of common equity % d. Calculate the weighted cost of each source of capital and the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Preferred stock Common equity Weighted Cost % Weighted average cost of capital 0.00 % F1 F2 80 F3 000 000 F4 ! @ # $ 1 2 3 4 % 95 F5 < Prev 22 of 25 Next > MacBook Air F6 & 6 29 7 F7 Q W E R T Y U 8*> DII F8 F9 F10 9 0 0

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