Lorre, Inc., recently issued new securities to finance a new TV show. The project cost $14 million, and the company paid $725,000 in flotation costs. In addition, the equity issued had a flotation cost of 7 percent of the amount raised, whereas the debt issued had a flotation cost of 3 percent of the amount raised. If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt–equity ratio?
Answer to relevant QuestionsYing Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is 34 percent, what is the after tax cost of Ying’sdebt?The Zipcar IPO was underpriced by about 56 percent. Should Zipcar be upset at Goldman over the underpricing?Canterbury, Inc., has 175,000 shares of stock outstanding. Each share is worth $68, so the company’s market value of equity is $11,900,000. Suppose the firm issues 30,000 new shares at the following prices: $68, $65, and ...Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 210,000 shares of stock outstanding. Under Plan II, there ...Cavo Corporation expects an EBIT of $19,750 every year forever.The company currently has no debt, and its cost of equity is 15 percent.a. What is the current value of the company?b. Suppose the company can borrow at 10 ...
Post your question