Carver Department Stores, Inc., constructs its own stores. In the past, no cost has been added to
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Total construction expenditures:
January 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . $ 500,000
May 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
November 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000
March 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 950,000
September 1, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
November 30, 2014 . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 600,000
...............................................................................$4,000,000
Outstanding company debt:
Mortgage related directly to new store; interest rate, 10%; term,
5 years from beginning of construction . . . . . .. . . . . . . . . . . . . . ............ . $1,500,000
General bond liability:
Bonds issued just prior to construction of store; interest rate,
13% for 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... . . . . . . .. . . $ 500,000
Bonds issued prior to construction; interest rate, 12%, mature in 5 years . .. . $ 800,000
Estimated cost of equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . . . . . . . 14%
Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...
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