Alpha Inc. currently has a target capital structure of 60% equity and 40% debt. This year...

 

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Alpha Inc. currently has a target capital structure of 60% equity and 40% debt. This year the firm expects to have retained earnings of $12 million. Alpha Inc. can raise $4 million in long-term debt (coupon rate is 8%, face value is $1,000, current price is $990, maturity is 8 years. coupons are paid semiannually), Alpha Inc. can raise an additional $6 million in debt at 9% pretax, all additional debt will cost 10% pretax. Alpha Inc.'s marginal tax rate is 40 percent. Alpha Inc. can also raise funds by issuing new common equity. The cost of external equity is 14.5%. Moreover, the beta of this stock is 1.5. The expected market rate of return is 10% and the risk-free rate is 2%. Show the MCC schedule for Alpha Inc. Show two decimal places on Alpha Inc. currently has a target capital structure of 60% equity and 40% debt. This year the firm expects to have retained earnings of $12 million. Alpha Inc. can raise $4 million in long-term debt (coupon rate is 8%, face value is $1,000, current price is $990, maturity is 8 years. coupons are paid semiannually), Alpha Inc. can raise an additional $6 million in debt at 9% pretax, all additional debt will cost 10% pretax. Alpha Inc.'s marginal tax rate is 40 percent. Alpha Inc. can also raise funds by issuing new common equity. The cost of external equity is 14.5%. Moreover, the beta of this stock is 1.5. The expected market rate of return is 10% and the risk-free rate is 2%. Show the MCC schedule for Alpha Inc. Show two decimal places on

Answer rating: 100% (QA)

To calculate the MCC schedule for Alpha Inc we need to calculate the cost of each component of its c... View the full answer