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Part I: Assume newly formed Corporation MEGIS needs to raise $1.5 million in capital so it can buy office buildings and the equipment needed to
Part I: Assume newly formed Corporation MEGIS needs to raise $1.5 million in capital so it can buy office buildings and the equipment needed to conduct its business. The company issues and sells 7.000 shares of stock at $100 each to raise the first $700.000. Because shareholders expect a return of 7% on their investment, the cost of equity is 7%. Part Requirement: Calculate the equity proportion ortion of financing. Show formula and calculation. Part II: Corporation MEGUS then sells 800 bonds for $1.000 each to raise the other. $800.000.in capital. The people who bought those bonds expect a 8% return, so MEGIS's cost of debt is 8%. Part II Requirement: Calculate the debt proportion (before tax) of financing. Show formula and calculation. Part III: Corporation MEGIS total market value is now ($700.000 equity + $800,000 debt) = $1.5 million and its corporate tax rate is 30%. Part III Requirement: Calculate WACC. Show formula and calculation. |
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