Question
slick enterprises has the following capital structure: loans, 10% $100,000 loans 15% $100,000 account payable $300,000 mortgage 8% $400,000 total liabilities 900,000 common stock 100,000
slick enterprises has the following capital structure:
loans, 10% $100,000
loans 15% $100,000
account payable $300,000
mortgage 8% $400,000
total liabilities 900,000
common stock 100,000
10,000 * $10 100,000
total liabilty and equity $1,000,000
account payable over 30 days old incur a cost of 1.5% per month. about half the accounts are older than 30 days. Common stock has a market price of $15 and earnings per share of $3.50 after taxes, of which $1.50 is paid as dividends.
a. obtain a weighted average cost of capital, assuming a marginal tax of 40%
b. is your numerical answer in part a a good value to use for minimum attractive rate of return? explain
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