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You are working in the Finance Department of Ranch Manufacturing, and your supervisor has asked you to compute the appropriate discount rate to use when
You are working in the Finance Department of Ranch Manufacturing, and your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm's present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm's capital structure shown below. To finance the purchase, Ranch Manufacturing will sell 15-year bonds with a $1,000 par value paying interest at a rate of 6.5 percent per year (with semiannual payments) at the market price of $925. Preferred stock paying a $2.25 dividend can be sold for $30. Common stock for Ranch Manufacturing is currently selling for $58 per share and the firm paid a $3.25 dividend last year. Dividends are expected to continue growing at a rate of 4 percent per year into the indefinite future. If the firm's tax rate is 26 percent, what discount rate should you use to evaluate the equipment purchase? Market Value Weight Cost W*C Cost of Debt Source of Capital Bonds Preferred Stock Common Stock Coupon Rate Years Cost of Preferred Stock Par Value PMT NPER Price (PV) Market price Dividend Cost of Preferred Stock YTM (Semi Annual) YTM (Annual) Tax Rate After Tax Cost of Debt Cost of Common Equity market price DO G Ind You are working in the Finance Department of Ranch Manufacturing, and your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm's present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm's capital structure shown below. To finance the purchase, Ranch Manufacturing will sell 15-year bonds with a $1,000 par value paying interest at a rate of 6.5 percent per year (with semiannual payments) at the market price of $925. Preferred stock paying a $2.25 dividend can be sold for $30. Common stock for Ranch Manufacturing is currently selling for $58 per share and the firm paid a $3.25 dividend last year. Dividends are expected to continue growing at a rate of 4 percent per year into the indefinite future. If the firm's tax rate is 26 percent, what discount rate should you use to evaluate the equipment purchase? Market Value Weight Cost W*C Cost of Debt Source of Capital Bonds Preferred Stock Common Stock Coupon Rate Years Cost of Preferred Stock Par Value PMT NPER Price (PV) Market price Dividend Cost of Preferred Stock YTM (Semi Annual) YTM (Annual) Tax Rate After Tax Cost of Debt Cost of Common Equity market price DO G Ind
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