(Cost of equity) Brille Corporation is issuing new common stock at a market price of $27Dividends Inst year were $1.80 and are expected to grow at an annual rate of 7 percent forever. Flotation costs will be 9 percent of market price. What is Brite's cost of equity Bre's cost of external common equity is % (Round to two decimal places) PIUUIUM (Sllal IU) will be 15 percent (Cost of den Carraway Seed Company is issuing a $1,000 par value bond that pays 12 percent annual interest and matures in 13 years, Investors are willing to pay $60 for the bond, Fictions of market value. The company is in a 40 percent tax bracket. What will be the firm's her tax cost of debt on the bord? The firm's after tax cost of debt on the bond will be Round to two decimal places) (Cost of preferred stock) The preferred lock of Texas Southern Power Company sells for $43 and pays $8 in dividends. The net price of the security after issuance costs is $37.14. What is the cost of capital for the preferred stock? The cost of capital for the preferred stock is % (Round to two decimal places.) Divisional costs of LPT Inc. is an integrated or company headquartered in Dallas, Texas. The company has three operating divisions of exploration and production commonly referred to as E&P). pipelines, and refining Historically, LPT did not spend a great deal of time thinking about the opportunity costs of capital for each of its divisions and used a company wide weighted average cost of capital of 14 percent for all new capital investment projects. Recent changes in its businesses have made abundantly dear to LPT's management that this is not a reasonable approach. For example, investors demand a much higher expected rate ofretum for exploration and production ventures than for pipeline investments. Although UPT's management agrees, in principle at least that afferent operating divisions should face an opportunity cost of capital that reflects their individual risk characteristics, they we not in agreement about whether a move toward divisional costs of capital is a good idea based on practical considerations a. Pele Jennings is the chief operating officer for me EAP division, and he is concerned that going to a system of divisional costs of capital may restrain his abilty to undertake very promising exploration opportunities Ho argues that the firm really should be concerned about finding those opportunities that offer the highest possible rate of return on invested capital Pate contends that using the firm's scarce capital to take on the most promising projects would lead to the greatest increase in shareholder value. Do you agree with Pate? Why or why not? b. The pipeine division manager, Donna Seima, has long argued that charging her division the company wide cost of capital of 14 percent severely penaires her opportunities to increase shareholder value. Do you agree with Donna? Explain. Pete's division invests capital in high-risk projects and should use an appropriate risk-based cost of capital. Each division should use the cost of capital that reflects the risk level of the cost of capital, Donna vision involves low risk activities and her division should use its own risk-based select from the drop-down menus)
