Heather, the CFO of Brown Technology Incorporated is planning next year's capital budget. It is at...

 

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Heather, the CFO of Brown Technology Incorporated is planning next year's capital budget. It is at its optimal capital structure, which is 18 percent debt and 82 percent common equity, and the company's earnings and dividends are growing at a constant rate of 11 percent. The last dividend, Do. was $1.20, and the company's stock currently sells at a price of $21 per share. The firm can raise debt at a 8 percent before- tax cost, and is projecting net income to be $2,100,000 with a dividend payout ratio of 30 percent. If the firm issues new common stock, a 6 percent flotation cost will be incurred. The firm's marginal tax rate is 40 percent. What is the cost of retained earnings? a. 16.81 percent b. 18.12 percent c. 17.34 percent d. 16.63 percent e. 18.47 percent If the company ends up spending $2.5 million of new capital, what would be the breakdown of the common equity used? a. $1,470,000 retained earnings and $580,000 common stock b. $630,000 retained earnings and $580,000 common stock c. $1,470,000 retained earnings and $560,000 common stock d. $630,000 retained earnings and $560,000 common stock e. None of the above is within $100 of the correct numbers. Calculate WACC2 in the MCC schedule. a. 15.42 percent b. 15.79 percent c. 16.13 percent d. 16.37 percent e. 16.72 percent Heather, the CFO of Brown Technology Incorporated is planning next year's capital budget. It is at its optimal capital structure, which is 18 percent debt and 82 percent common equity, and the company's earnings and dividends are growing at a constant rate of 11 percent. The last dividend, Do. was $1.20, and the company's stock currently sells at a price of $21 per share. The firm can raise debt at a 8 percent before- tax cost, and is projecting net income to be $2,100,000 with a dividend payout ratio of 30 percent. If the firm issues new common stock, a 6 percent flotation cost will be incurred. The firm's marginal tax rate is 40 percent. What is the cost of retained earnings? a. 16.81 percent b. 18.12 percent c. 17.34 percent d. 16.63 percent e. 18.47 percent If the company ends up spending $2.5 million of new capital, what would be the breakdown of the common equity used? a. $1,470,000 retained earnings and $580,000 common stock b. $630,000 retained earnings and $580,000 common stock c. $1,470,000 retained earnings and $560,000 common stock d. $630,000 retained earnings and $560,000 common stock e. None of the above is within $100 of the correct numbers. Calculate WACC2 in the MCC schedule. a. 15.42 percent b. 15.79 percent c. 16.13 percent d. 16.37 percent e. 16.72 percent

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