Harford Undercover LLC has an opportunity to expand their mold remediation operation. Their innovative approach is very

Question:

Harford Undercover LLC has an opportunity to expand their mold remediation operation. Their innovative approach is very effective and highly in demand. To expand their operation, they are seeking to build a second facility in southern New England. The cost to build the new facility, fit up and provide for additional start up working capital is $880,000, and carries a 7% to implement. Year 1, business at the new location will produce $350,000 in cashflow, years 2 to 4 will produce $250,000 cashflow each year, and year 5 will produce $200,000 in cashflow.
Using the information above and here, Harford Undercover LLC needs to raise additional funds in support of the expansion discussed below. Their corporate bylaws suggest a mix of 45% debt, 5% preferred stock and 50% common stock. The company is in the 35% tax bracket. Please show all work.
a) The company can issue $1,000 bonds at 10%, although the current market is paying 11%. As a result, the company will need to sell the bonds at a discount of $975. (assume the unlikely scenario that the underwriter will provide their services for nothing). What is the firm's AFTER TAX cost to issue these bonds? (Hint: YTM = going market rate)
b) The company can issue preferred shares of stock at $90 per share and pay an 8% The stock brokerage firm will charge $5 per share to issue the stock. Please calculate the cost of issuing preferred shares?
c) Finally, the company can issue at $75 per share. The has grown consistently for the past ten years at 7%. Next year they expect to issue a of $7.50. What is the cost of common stock?
d) Calculate the weighted average (WACC) for Harford Undercover LLC (using the target weights aforementioned for debt, preferred stock and common equity.
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...