I just need to know how to calculate the yield rate and the annual yield. I also need to know where the values are taken from. Thank you for your help in advance.

MGT 325 Module 5 Spreadsheet Exam - this is one long problem or case To do this exam you need to study the cases at the end of Chapter 11. Remember that the cost of debt when calculated is before tax and has to be converted to an after tax return. The returns on preferred and common stock are already after tax so are not adjusted which is in Chapter 10. PROBLEM FOR CHAPTERS TEN AND ELEVEN

Saint Leo Manufacturing is going to introduce a new product line and to accomplish this it has four projects analyzed in which it wants to invest a total of $100 million. Your job is to find what it will cost to raise this amount of capital and based on the cost of capital determine which of the projects should be accepted by the firm to invest in.

PROJECTS A B C D INVESTMENT $30,000,000 $20,000,000 $25,000,000 $25,000,000

EXPECTED RETURN 10.00% 14.00% 11.50% 16.00%

The firms capital structure consists of:

FMV CAPITAL PERCENTAGE AMOUNT

DEBT 30% $15,000,000

PREFERRED STOCK 10% $5,000,000

COMMON STOCK 60% $30,000,000

$50,000,000

Other information about the firm:

CORPORATE TAX RATE 30%

DEBT CURRENT PRICE $1,050.00

ANNUAL INTEREST 6.00% CURRENT INTEREST PAID SEMIANNUALLY ORIGINAL MATURITY 25 YEARS, BUT NOW 20 YEARS LEFT

MATURITY VALUE $1,000.00

FLOTATION COST INSIGNIFICANT

MARKET YIELD PROJECTED:

UP TO $20 MILLION 9%

ABOVE $20 MILLION 12% 3 % additional premium

PREFERRED

CURRENT PRICE $45.00

LAST DIVIDEND (D0) $3.38 FIXED AT 7.5% OF PAR

FLOTATION COST $1.50

NEXT DIVIDEND (D1) $3.38

COMMON

CURRENT PRICE $35.00

LAST DIVIDEND (D0) $1.00

RETAINED EARNINGS $10,000,000

GROWTH RATE (g) 9%

FLOTATION COST $1.50

NEXT DIVIDEND (D1) $1.090

NOTE - Once retained earnings is maxed out new common stock will need to be issued. Any preferred stock would be new preferred stock. You may want to review case in chapter 11.

REQUIRED: In all of the required parts one part builds on the previous part. If you can't do a part use the set of other numbers to solve the next part.

a. What is the current Kd, Kp and Ke assuming no new debt or stock?

b. Since any new capital investment will require issuing new perferred stock, what would the the new returns be preferred stock (knp) and the new cost of capital?

c. What amount of increase (marginal cost of capital) in capital structure will the firm run out of retained earnings and be forced to issue new common stock?

d. If new common stock has to be issued what will the new return required be (Kne) and the new cost of capital?

Note: All Answers Should Be Taken Out to 2 Decimal Places, Especially the Interest Rate Answers.

Part a

Current price $1,050.00

Maturity value $1,000.00

Interest payment $30

Payment periods 40

Yield rate six month rate

Annual yield annual rate

Kd

Kp

Ke

Current Cost of capital