MNQ Company's pretax cost of debt is 7 percent.

For this part of the assignment only, assume that MNQ Company's book value capital structure weights equal its market value capital structure weights.

Estimate the company's cost of capital for 2008.

MNQ Company

Balance Sheet ($000)

2008

2007

2006

2005

2004

Assets

Current Assets

Cash and cash equivalents

$250

$225

$191

$160

$192

Accounts receivable

$650

$585

$497

$425

$510

Inventories

$300

$270

$230

$200

$240

Total Current Assets

$1,200

$1,080

$918

$785

$942

Fixed Assets

Property, plant, and equipment

$2,200

$1,870

$1,814

$1,422

$1,400

Less: Accumulated depreciation

$400

$200

$180

$80

$75

Net property, plant, and equipment

$1,800

$1,670

$1,634

$1,342

$1,325

Intangible assets

$300

$240

$220

$210

$205

Total Fixed Assets

$2,100

$1,910

$1,854

$1,552

$1,530

Total Assets

$3,300

$2,990

$2,772

$2,337

$2,472

Liabilities and Stockholders' Equity

Current Liabilities

Accounts payable

$400

$340

$299

$245

$319

Notes payable

$300

$255

$224

$184

$239

Accrued expenses

$600

$510

$449

$368

$478

Total Current Liabilities

$1,300

$1,105

$972

$797

$1,037

Long-Term Liabilities

Long-term debt

$400

$380

$370

$350

$345

Deferred taxes

$250

$230

$220

$210

$205

Total Long-Term Liabilities

$650

$610

$590

$560

$550

Total Liabilities

$1,950

$1,715

$1,562

$1,357

$1,587

Stockholders' Equity

Common stock

$100

$100

$100

$100

$100

Capital surplus

$450

$420

$410

$380

$370

Retained earnings

$800

$755

$700

$500

$415

Total Stockholders' Equity

$1,350

$1,275

$1,210

$980

$885

Total Liabilities and Stockholders' Equity

$3,300

$2,990

$2,772

$2,337

$2,472

MNQ Company
Income statement ($000 - Except for per share information)						2008	2007	2006	2005	2004
Sales						$1,200	$1,100	$880	$750	$875
Cost of goods sold						$540	$550	$264	$360	$306
Selling, general, and administrative expenses						$180	$200	$165	$210	$180
Depreciation						$200	$20	$100	$5	$75
Operating income						$280	$330	$351	$175	$314
Other income						$40	$30	$20	$18	$30
Earnings before interest and taxes (EBIT)						$320	$360	$371	$193	$344
Interest expense						$28	$27	$26	$25	$24
Earnings before taxes (EBT)						$292	$333	$345	$169	$320
Taxes (35%)						$102	$117	$121	$59	$112
Net income						$190	$217	$224	$110	$208
	Addition to retained earnings					$45	$55	$200	$85	$120
	Dividends					$145	$162	$24	$25	$88
Additional Information:
Shares outstanding						50	50	50	50	50
Book value per share						27	25.5	24.2	19.6	17.7
Market price per share						21	18.5	18	16	25
Earnings per share						$3.80	$4.33	$4.49	$2.19	$4.15
Dividends per share						$2.90	$3.23	$0.49	$0.49	$1.75