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Show all work Browning Bookbinding LTD has the following capital structure: 65% common & 5% preferred stock; 30% long-term debt. The fair-value risk premium of
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Browning Bookbinding LTD has the following capital structure: 65% common & 5% preferred stock; 30% long-term debt. The fair-value risk premium of Browning Bookbinding LTD stock vs. long-term government bonds is 12%. The 20-year US Govt. bond yield is 5.0%. Browning's credit rating is BBB+ and the credit spread for 20-year BBB+ corporate debt is 2.5%. Browning's tax rate is 35%. The firm recently issued preferred stock at $50/share par value that pays a 10% dividend yield. Issuance costs of the preferred were 5% of par.
- Calculate Browning Bookbinding LTDs cost of equity? (5 pts)
- Calculate Browning's pre-tax & after-tax cost of debt? (5 pts)
- Calculate the cost of preferred stock net of issuance? (5 pts)
- Browning is considering expanding its operations abroad and wants to determine its weighted average cost of capital. Calculate Browning's WACC using the above information. (5 pts)
- The IRR of Browning's expansion is 15%. If it finances the project with retained earnings (i.e. all equity), should it proceed with the project? Why or why not? (2.5 pts)
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