core: 0 of 7 pts 4 of 4 (0 complete HW Score: 0%, 0 of 1 Mini Case. Chapter 9-1 (similar to) Question Help alon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expended into nonzontaldring ochiques for the development of the massive deposits of both gas and in sale formations. The company's operations in the Haynesvile sale located in northwest Lotion) have been to significant that needs to constructa natural gas gathering and processing center near Bossier Cry, Louisiana, at an estimated cost of 80 milion To france the new tacity, Neaton has $30 milion in profits that it will use to finance a portion of the expansion and plans to seabond se to rase the remaining 350 milion. The decision to use so much do randing to the project waargely due to the argument by company CEO Douglas Nonton Se that debt financing is relatively cheap relative to common stock (which the firms used in the past. Company CFO Doug Nation, son of the company founder did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the out-of-pocket Colering was equal to the new interest that must be paid on the debt. However, the CFO also know that by using debt for this project the firm would eventually have to use equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds. The following balance sheet, offects the mix of capital sources that calon has used in the past Although the percentages would vary over time, the end omurage its capital structure back toward the proportions The tem ceny has one of bonds outstanding. The bonds have a par value of $1.000 per bond, carry a coupon rate of 12 perature 14 years to maturity, and are selling for $1,050 Neon's common ocks arent market price of $35, and the femand a $2.50 dividend ist year that is expected to increase an anal rate of 5 percent for the forestiere 2. What is the yard to maturity for Reader's bonds under cert monet conditore Loud to wo decimales Enter your in the war bor und then click here 6 Type here to wach o i . M E T P S F G . K Z B N to) ition, exploration, development, and production of natural gas and oil in the continental United States. The company has e development of the massive deposits of both gas and oil in shale formations. The company's operations in the Haynes ta natural gas gathering and processing center near Bossier City, Louisiana, at an estimated cost of $80 million. nin profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining 850 mil Data Table pan (Click on the following icon in order to copy its contents into a spreadsheet.) res . SOURCE OF FINANCING Bonds Common stock TARGET CAPITAL STRUCTURE WEIGHTS 40% 60% Print Done and then click Check Answer CA O 3 3 5 7 8 9 E R T Y D A F G H c K lo V B N. M Question Help the proportions The fum currently has one of bonds outstanding. The bonds have a par value of $1.000 per bond, carry a coupon rate of 12 percent have years to matunity, and are selling for $1,050. Noon's common stock has a current market price of $35, and the firm paid a $2.50 dividend last year that is expected to increase at an annual rate of 5 percent for the foresonable future a. What is the yield to maturity for Newton's bonds under current market conditions? b. What is the cost of new debt financing to Newton based on current market prices after both taxes you may use a marginal tax rate of 24 percent for your state and folation costs of 20 per bond have been considered Note Use N14 for the number of years until the new bond matures c. What is the inventor's required rate of return for Nelor's common stock? Il Neaion were to sell now shares of common stock, it would incur a cost of $250 per share. What is your state of the cost of now equlyfranding and from the sale of common stock? d. Compute the woghted average cost of capital for Nations Investment in the weights reflected in the actual financing me that is $30 million in retained carings and 550 min in bonds e. Compute the weighted average cost of capital for Neaion where the fim maintains its target coital structure by reduonis debt offering to 40 percent of the $80 milion in capital of $32 million using $50 million in retained carings and training 578 milion through a new equity offering Lt you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part dore love the new project? Why? a. What is the id to maturity for aloris bonds under current market condition? IN Round wo decimal Enter your answer in the box and then do Check An parts og Cat Type here to search o BI E 112 PM 12: Y G T K Z B Z core: 0 of 7 pts 4 of 4 (0 complete HW Score: 0%, 0 of 1 Mini Case. Chapter 9-1 (similar to) Question Help alon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expended into nonzontaldring ochiques for the development of the massive deposits of both gas and in sale formations. The company's operations in the Haynesvile sale located in northwest Lotion) have been to significant that needs to constructa natural gas gathering and processing center near Bossier Cry, Louisiana, at an estimated cost of 80 milion To france the new tacity, Neaton has $30 milion in profits that it will use to finance a portion of the expansion and plans to seabond se to rase the remaining 350 milion. The decision to use so much do randing to the project waargely due to the argument by company CEO Douglas Nonton Se that debt financing is relatively cheap relative to common stock (which the firms used in the past. Company CFO Doug Nation, son of the company founder did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the out-of-pocket Colering was equal to the new interest that must be paid on the debt. However, the CFO also know that by using debt for this project the firm would eventually have to use equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds. The following balance sheet, offects the mix of capital sources that calon has used in the past Although the percentages would vary over time, the end omurage its capital structure back toward the proportions The tem ceny has one of bonds outstanding. The bonds have a par value of $1.000 per bond, carry a coupon rate of 12 perature 14 years to maturity, and are selling for $1,050 Neon's common ocks arent market price of $35, and the femand a $2.50 dividend ist year that is expected to increase an anal rate of 5 percent for the forestiere 2. What is the yard to maturity for Reader's bonds under cert monet conditore Loud to wo decimales Enter your in the war bor und then click here 6 Type here to wach o i . M E T P S F G . K Z B N to) ition, exploration, development, and production of natural gas and oil in the continental United States. The company has e development of the massive deposits of both gas and oil in shale formations. The company's operations in the Haynes ta natural gas gathering and processing center near Bossier City, Louisiana, at an estimated cost of $80 million. nin profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining 850 mil Data Table pan (Click on the following icon in order to copy its contents into a spreadsheet.) res . SOURCE OF FINANCING Bonds Common stock TARGET CAPITAL STRUCTURE WEIGHTS 40% 60% Print Done and then click Check Answer CA O 3 3 5 7 8 9 E R T Y D A F G H c K lo V B N. M Question Help the proportions The fum currently has one of bonds outstanding. The bonds have a par value of $1.000 per bond, carry a coupon rate of 12 percent have years to matunity, and are selling for $1,050. Noon's common stock has a current market price of $35, and the firm paid a $2.50 dividend last year that is expected to increase at an annual rate of 5 percent for the foresonable future a. What is the yield to maturity for Newton's bonds under current market conditions? b. What is the cost of new debt financing to Newton based on current market prices after both taxes you may use a marginal tax rate of 24 percent for your state and folation costs of 20 per bond have been considered Note Use N14 for the number of years until the new bond matures c. What is the inventor's required rate of return for Nelor's common stock? Il Neaion were to sell now shares of common stock, it would incur a cost of $250 per share. What is your state of the cost of now equlyfranding and from the sale of common stock? d. Compute the woghted average cost of capital for Nations Investment in the weights reflected in the actual financing me that is $30 million in retained carings and 550 min in bonds e. Compute the weighted average cost of capital for Neaion where the fim maintains its target coital structure by reduonis debt offering to 40 percent of the $80 milion in capital of $32 million using $50 million in retained carings and training 578 milion through a new equity offering Lt you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part dore love the new project? Why? a. What is the id to maturity for aloris bonds under current market condition? IN Round wo decimal Enter your answer in the box and then do Check An parts og Cat Type here to search o BI E 112 PM 12: Y G T K Z B Z