Problem 1:

Explain what the capital structure of a company is.

Problem 2:

List the sources of long-term financing used by companies to finance investment capital, in order of lowest to highest cost, and explain what factor causes one source of capital to be more or less expensive than the other sources.

Problem 3:

Using the cost of debt approximation formula, determine the pre-tax cost for a bond that sells for $925 of its par value and pays a coupon of $85 for 20 years. Issuance costs (flotation costs) are $5 per bond. You must show the calculations to receive points for your answer.

Problem 4:

For the case in problem 3, calculate the cost of debt after taxes if the company's tax liability is 40%. You must show the calculations to receive points for your answer.

Problem 5:

Considers issuing preferred stock with an annual dividend of $12.00 per preferred share. These shares will sell for $100 each. The issuance cost (flotation cost) is $8 per share. Calculate the cost of preferred capital. You must show the calculations to receive points for your answer.

Problem 6:

DupT Corporation plans to issue common stock to finance its next capital investment project. The market price of the corporation's stock is $75 per share. A dividend of $5 per share is expected to be paid at the end of the year. The corporation has had an average annual growth of 6%. The issuance cost is $2.50 per share. Determines the cost of equity capital using Gordon's constant growth method (Gordon Growth Model). You must show the calculations to receive credit for your answer.

MBA 5050