Penafiel and Godoy have an optimal capital structure that consists of 40% debt and 60% common equity. They expect to have 500,000,000 of now retained camnings available for investment for the next year BONDS. Their investment bankers assure them that they could Issue $20,000,000 (net of flotation costs) of $1000 face value bonds carrying a 6% coupon rate, paying annual interest, having a 10-year maturity, at a price of $1200. Flotation costs for this issue would be $50 per bond. The company could issue an additional $40,000,000 (net of flotation costs) of debt, also with a $1000 face value, a 6% coupon rate, a 10-year maturity. at a price of $1200, but flotation costs would be $100 per bond. Bonds issued beyond $60,000,000 will have a flotation cost of $200 per bond, a 200, a 6% coupon rate, and a 10-year maturity. COMMON STOCK. The current stock price is $80. The expected dividend is $8 per share, (D1=$8). Dividends are expected to grow at a rate of 7% forever. 500,000 shares of new stock can be issued at $80 per share and flotation costas would be $8 per share. Beyond 500,000 new shares, flotation costs are $11 per share. Peafiel and Godoy have a corporate tax rate of 30%. They also have the following investments available for the next year. Costs are expressed in millions: Project IRR 18% 16% Cost 20 60 50 80 40 15% 13% 11% Determine the optimal capital budget for next year. Penafiel and Godoy have an optimal capital structure that consists of 40% debt and 60% common equity. They expect to have 500,000,000 of now retained camnings available for investment for the next year BONDS. Their investment bankers assure them that they could Issue $20,000,000 (net of flotation costs) of $1000 face value bonds carrying a 6% coupon rate, paying annual interest, having a 10-year maturity, at a price of $1200. Flotation costs for this issue would be $50 per bond. The company could issue an additional $40,000,000 (net of flotation costs) of debt, also with a $1000 face value, a 6% coupon rate, a 10-year maturity. at a price of $1200, but flotation costs would be $100 per bond. Bonds issued beyond $60,000,000 will have a flotation cost of $200 per bond, a 200, a 6% coupon rate, and a 10-year maturity. COMMON STOCK. The current stock price is $80. The expected dividend is $8 per share, (D1=$8). Dividends are expected to grow at a rate of 7% forever. 500,000 shares of new stock can be issued at $80 per share and flotation costas would be $8 per share. Beyond 500,000 new shares, flotation costs are $11 per share. Peafiel and Godoy have a corporate tax rate of 30%. They also have the following investments available for the next year. Costs are expressed in millions: Project IRR 18% 16% Cost 20 60 50 80 40 15% 13% 11% Determine the optimal capital budget for next year
