Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Can you answer A to G please. It's a little urgent. Highly appreciated 7 Ezzell Enterprises has the following capital structure, which it considers to
Can you answer A to G please. It's a little urgent. Highly appreciated
7 Ezzell Enterprises has the following capital structure, which it considers to be optimal under present and forecasted conditions: Debt (long-term only Common equity Total liabilities and equity 45% 100% For the coming year, management expects after-tax earnings of S2.5 mil- lion. Ezzell's past dividend policy of paying out 60 percent of earnings will continue. Present commitments from its banker will allow Ezzell to borrow according to the following schedule: LOAN AMOUNT INTEREST RATE 9% on this increment of debt 1 1% on this increment of debt 13% on this increment of debt S0 to S500,000 $500,001 to $900,000 $900,001 and above The company's marginal tax rate is 40 percent, the current market price of its stock is S22 per share, its last dividend was S2.20 per share, and the expected growth rate is 5 percent. External equity (new common) can be sold at a flota- tion cost of 10 percent. EreCos Ezzell has the following investment opportunities for the next year: PROJECT CoST ANNUAL CASH FLOws PROJECT LIFE IRR S155,401 268,484 161,524 185,194 127,351 S675,000 900,000 75,000 562,500 50,000 8 years 1 5.0% 12.0 11.0 10 Management asks you to help determine which projects (if any) should be undertaken. You proceed with this analysis by answering the following ques- tions (or performing the tasks) as posed in a logical sequence: a. How many breaks are there in the MCC schedule? At what dollar amounts do the breaks occur, and what causes them? b. What is the weighted average cost of capital in each of the intervals between the breaksStep 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