Question
SPC uses only debt and equity. It can borrow unlimited at an interest rate of 12%, as long as it finances at its target capital
SPC uses only debt and equity. It can borrow unlimited at an interest rate of 12%, as long as it finances at its target capital structure, which calls for 45% debt and 55% equity. Its last dividend was $2.40, its expected constant growth rate is 5%, and its stock sells for $24. SPCs tax rate is 40%. Four projects are available:
Project A- Cost $250 million and Return=13%
Project B- Cost $125 million and Return=12%
Project C- Cost $200 million and Return=11%
Project D- Cost $150 million and Return=10%
What is SPCs cost of common stock? Hint d1/Po + g
A) 5%
B) 10%
C) 15%
D) 15.5%
E) 5.15%
What would be the optimal capital budget for SPC?
A) $250
B) $375
C)$200
D) $350
E) $150
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