Question
Please answer A, B,C, and D! Thank you! 3a. a business is raising money for a new project. It is looking for raising $40 million
Please answer A, B,C, and D! Thank you!
3a. a business is raising money for a new project. It is looking for raising $40 million via bonds. The planned bond has a 9.5% semi-annual coupon, $1000 par value, and 18 years to maturity. After the fee is paid to the investment bank, the business will receive $965 for each bond.
What is the cost of debt for the new project?
3b. one year ago, the businesss earnings report posted $9.5 EPS, and the business paid a $3.6 dividend for each share. The ROE is 11%. Assume the retention ratio would stay the same for the next few years. What is the growth rate for the businesss common stock?
3c. Assume the businesss dividend will grow at the fixed rate as last year in the future, and the current market value of the stock is $48. Find the cost of common stock? (10 points)
If there is any missing information, you can find them from Q3a and Q3b.
3d. an $85 million project is in evaluation, and the management decides to use both debt and common stocks to fund the project. After bonds are issued, the remaining balance of the $85 million capital budget will be financed with retained earnings (retained earnings belong to common stock). The marginal tax rate is 21%. Given the information above, what is the weighted average cost of capital for the coming year? (10 points)
If there is any missing information, you can find them from Q3a, Q3b, and Q3c.
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