Morrissey Financial Data Debt Preferred Stock issued 20,000 shares 6 years ago at $100 par value with dividend of $6 and floatation costs of $10 similar preferred issues are now selling in the market at $100 Common Equity issued 2,300,000 shares at $9.50 Accumulated retained earning is now $5,000,000 Market Price is: $11.25 Target Capital Structure \begin{tabular}{|lr|} \hline Debt & 35% \\ \hline Preferred & 5% \\ \hline Equity & 60% \\ \hline \end{tabular} Additional Financial Information Investment Opportunity Schedule \begin{tabular}{|l|l|r|l|l|} \hline Project & IRR & \multicolumn{2}{|c|}{ Capital Requirement } \\ \hline A & & 14% & $3,000,000 & \\ \hline B & & 8% & $2,500,000 & \\ \hline C & 6% & $2,000,000 & \\ \hline D & 5% & $1,000,000 & \\ \hline & & $8,500,000 & Total of all Projects \\ \hline \end{tabular} Calculate the firm's capital structure based on book and market values and compare with the target capital structure. Debt: x Bond Market Price Caluculation Using Excel: Market Semi-annual Interest Rate: Interest Payment Periods Remaining: Semi-Annual Interest Payment: Single Bond Face Value: \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} Preferred Stock: x Preferred Stock Market Price Caluculation Using Excel: Preferred Stock Dividend per Share: x Market Rate of Similar Stock: Common Eauitv: ) Calculate the cost of debt based on the market return on the company's existing bonds. Debt: Calculate the cost of preferred stock based on the market return on the company's existing preferred stock Preferred Stock: Calculate the cost of retained earnings using two approaches: CAPM \& Dividend Growth Model. Average the results into a single estimate for the Cost of Common Equity CAPM: Dividend Growth: ) Calculate the WACC using equity from retained earnings based on your component cost estimates and the target capital structure F Where is the first breakpoint in the MCC (the point where retained earnings runs out)? Calc ulate to the nearest \$.1N D42+ ts ts Estimate the cost of equity raised through the sale of new stock using the dividend growth approach Dividend Growth: H Calculate the WACC after the first breakpoint. Debt Preferre Comma WACC I Where is the second breakpoint in the MCC (the point at which the cost of debt increases.) Calculate the new cost of debt based on the additional lending information. K Calculate the WACC after the second break. Calculate to the nearest 0.1%. k Plot Morrissey's MCC. I Plot Morrissey's IOS on the same axes as the MCC. Morrissey Financial Data Debt Preferred Stock issued 20,000 shares 6 years ago at $100 par value with dividend of $6 and floatation costs of $10 similar preferred issues are now selling in the market at $100 Common Equity issued 2,300,000 shares at $9.50 Accumulated retained earning is now $5,000,000 Market Price is: $11.25 Target Capital Structure \begin{tabular}{|lr|} \hline Debt & 35% \\ \hline Preferred & 5% \\ \hline Equity & 60% \\ \hline \end{tabular} Additional Financial Information Investment Opportunity Schedule \begin{tabular}{|l|l|r|l|l|} \hline Project & IRR & \multicolumn{2}{|c|}{ Capital Requirement } \\ \hline A & & 14% & $3,000,000 & \\ \hline B & & 8% & $2,500,000 & \\ \hline C & 6% & $2,000,000 & \\ \hline D & 5% & $1,000,000 & \\ \hline & & $8,500,000 & Total of all Projects \\ \hline \end{tabular} Calculate the firm's capital structure based on book and market values and compare with the target capital structure. Debt: x Bond Market Price Caluculation Using Excel: Market Semi-annual Interest Rate: Interest Payment Periods Remaining: Semi-Annual Interest Payment: Single Bond Face Value: \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} Preferred Stock: x Preferred Stock Market Price Caluculation Using Excel: Preferred Stock Dividend per Share: x Market Rate of Similar Stock: Common Eauitv: ) Calculate the cost of debt based on the market return on the company's existing bonds. Debt: Calculate the cost of preferred stock based on the market return on the company's existing preferred stock Preferred Stock: Calculate the cost of retained earnings using two approaches: CAPM \& Dividend Growth Model. Average the results into a single estimate for the Cost of Common Equity CAPM: Dividend Growth: ) Calculate the WACC using equity from retained earnings based on your component cost estimates and the target capital structure F Where is the first breakpoint in the MCC (the point where retained earnings runs out)? Calc ulate to the nearest \$.1N D42+ ts ts Estimate the cost of equity raised through the sale of new stock using the dividend growth approach Dividend Growth: H Calculate the WACC after the first breakpoint. Debt Preferre Comma WACC I Where is the second breakpoint in the MCC (the point at which the cost of debt increases.) Calculate the new cost of debt based on the additional lending information. K Calculate the WACC after the second break. Calculate to the nearest 0.1%. k Plot Morrissey's MCC. I Plot Morrissey's IOS on the same axes as the MCC