Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

i need answer please The Nolan Corporation finds that it is necessary to determine its marginal cost of capital. Nolan's current capalal suructure calls for

i need answer please
image text in transcribed
image text in transcribed
The Nolan Corporation finds that it is necessary to determine its marginal cost of capital. Nolan's current capalal suructure calls for 30 percent debt, 20 percent preferred stock, and 50 percent common equity Initially common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows debt, 52 percent; preferred stock, 7 percent, retained earnings, 10 percent, and new common stock, 112 percent a. What is the initial weighted average cost of capital? (include debt, preferred stock, and common equity in the form of retannd earnings, Ke ) (Do not round intermediate calculations, Round the final answer to 2 decimal piaces.) Weighted average cost of capital b. If the firm has $27 million in retained earnings, at what size of investment will the firm run out of retained earnings? (Enter the ahswer in millions:) Capital structure size (X) million c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 50 percent of the captai stukcture but it will all be in the form of new common stock. Kn ) (Do not round intermediate calculations. Round the final answer to 2 . decimal places.) b. If the firm has $27 million in retained earnings, at what size of investment will the firm run out of retained earnings? (Enter the answer in millions.) Capital structure size (X) million c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 50 percent af the capatal structure, but it will all be in the form of new common stock, Kn ) (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Marginal cost of capital % d. The 5.2 percent cost of debt referred to above applies only to the first $42 million of debt. After that the cost of debt will be 72 percent. At what size of investment will there be a change in the cost of debt? (Enter the answer in millions) Capital structure size (Z) e. What will the marginal cost of capital be immediately after that point? (Consider the facts in both parts c and d) (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Marginal cost of capital 96

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

Financial Accounting Theory And Analysis Text And Cases

Authors: Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey

14th Edition

1119881226, 978-1119881223

More Books

Students also viewed these Accounting questions