Answered step by step
Verified Expert Solution
Link Copied!
Question
1 Approved Answer

At the end of 2021, N Corporation had the following capital structure considered to be optimal (in million pesos): Long-term debt: 10% coupon bonds P14.00

image text in transcribed

At the end of 2021, N Corporation had the following capital structure considered to be optimal (in million pesos): Long-term debt: 10% coupon bonds P14.00 12% coupon bonds P28.00 P42.00 25% 16% Preference shares. P100 par value 25,20 15% Ordinary shares. P10 par value 42.00 25% Retained earnings 58.80 35% Total P168.00M N Management desires to increase its productive capacity. This will require new funds amounting to P50,000,000, which can be raised by: Issuing new bonds at par with a 14% rate. Issuing additional preference shares at par. Issuing a new ordinary shares at P42 per share, net of P3 Reshare floatation costs. Using internal funds from retained earnings. N has had 8% dividend yield and a growth rate of 9% over the past several years. The corporate tax rate is 32% N wishes to maintain its present capital structure. Requirements: Compute for the following: 1. To maintain the present capital structure, how much of the required funds must be financed internally? 2. How much dividend per share has the company been paying to its ordinary shares? 3. What is the after-tax cost of debt? 4. What is the cost of preference shares? 5. What is the cost of new issuance of ordinary shares? 6. What is the cost of retained earnings (internal funding)? 7. If the capital structure is maintained the weighted average marginal cost of capital is

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_2

Step: 3

blur-text-image_3

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

Accounting Texts And Cases

Authors: Robert Anthony, David Hawkins, Kenneth A. Merchant

12th Edition

0073100919, 978-0073100913

More Books

Students explore these related Accounting questions