1 ok nt nt ences A-Rod Manufacturing Company is trying to calculate its cost of capital...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1 ok nt nt ences A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 11.5 percent coupon rate and another bond with an 9.1 percent rate. The firm has been informed by its investment banker that bonds of equal ris and credit rating are now selling to yield 12.4 percent. The common stock has a price of $69 and an expected dividend (D1) of $1.89 per share. The historical growth pattern (g) for dividends is as follows: $1.44 1.58 1.73 1.89 The preferred stock is selling at $89 per share and pays a dividend of $8.50 per share. The corporate tax rate is 30 percent. The flotation cost is 2.0 percent of the selling price for preferred stock. The optimum capital structure for the firm is 25 percent debt, 20 percent preferred stock, and 55 percent common equity in the form of retained earnings. a. Compute the average historical growth rate. Note: Do not round intermediate calculations. Round your answer to the nearest whole percer and use this value as g. Input your answer as a whole percent. Growth rate % b. Compute the cost of capital for the individual components in the capital structure. Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Preferred stock Weighted Cost 8.70% 9 75 < Prev 21 of 25 Next > 1 ok nt nt ences A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 11.5 percent coupon rate and another bond with an 9.1 percent rate. The firm has been informed by its investment banker that bonds of equal ris and credit rating are now selling to yield 12.4 percent. The common stock has a price of $69 and an expected dividend (D1) of $1.89 per share. The historical growth pattern (g) for dividends is as follows: $1.44 1.58 1.73 1.89 The preferred stock is selling at $89 per share and pays a dividend of $8.50 per share. The corporate tax rate is 30 percent. The flotation cost is 2.0 percent of the selling price for preferred stock. The optimum capital structure for the firm is 25 percent debt, 20 percent preferred stock, and 55 percent common equity in the form of retained earnings. a. Compute the average historical growth rate. Note: Do not round intermediate calculations. Round your answer to the nearest whole percer and use this value as g. Input your answer as a whole percent. Growth rate % b. Compute the cost of capital for the individual components in the capital structure. Note: Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Preferred stock Weighted Cost 8.70% 9 75 < Prev 21 of 25 Next >
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
12. Bill thinks that welfare is needed in some cases. However, his friends in the Young Republicans taunt him every time he makes his views known. As a result, he accepts their views in order to...
-
Three years ago Yeagley and Sons purchased the three assets listed in the following table. The chief financial officer, Kathy Dillon, is presently trying to decide what to do with each asset. She has...
-
Pneumatic manifold __________________ is a key parameter monitored on the flight deck.
-
Why is the metaphor of a casting director appropriate for the role of a general manager?
-
"Conch Republic Electronics is a mid-sized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired...
-
Please solve both of the questions. You don't need to include detailed steps and explanations just upload the correct answer to fill the boxes. . [I5 Points] | MY NOTE.' Use ogarithmic...
-
How do you subnet 192.202.1.0/24 into three subnets with 16 hosts each?
-
How does involvement in the budgetdecision-making process impact the satisfaction of lower-level supervisors with their resource allocation?
-
7 Cost of production report-average method. The Millwood Supply Company manufactures ingle product on a continuous plan in three departments. On November 1, the work in process eventory in Department...
-
Find the largest open interval where the function is changing as requested. Increasing f(x) = x - (1,) O (-, -1) O (-1, 1) (-, )
-
Explain ANY FOUR functions of money. Explain ANY characteristic of money Question 2 (a) Explain ANY THREE roles of financial markets. (b) Differentiate between capital market and money market. (c)...
-
You are evaluating two different milling machines to replace your current aging machine. Machine A costs $235,130, has a three-year life, and has pretax operating costs of $61,061 per year. Machine B...
-
Marta Co.'s ledger shows the following balances on December 31, 2015: Preferred stock (5%; $10 par, outst. 20,000 shares) $200K Common Stock ($100 par, outst. 30,000 shares) $3M Retained Earnings...
-
Complete the equations for the following equilibria and calculate Keq where the Keq expression includes [HO]. Be sure to enter Keq in proper scientific notation. (a) ammonia (acting as a base) reacts...
-
Glamis plc manufactures, distributes and retails glassware. The following matters relate to its financial statements for the year ended 31 July 1998: (1) On 25 June 1998, one of the company's...
-
During the completion of the financial statements of Angus plc for the year ended 28 February 1997, the following matters have been brought to your attention. (1) On 1 March 1996, the company...
-
Shiny Bright plc was incorporated in 1980 to provide cleaning services for hotel, hospital and catering clients; it diversified into hotel ownership in the 1990s. In the early 1990s the company...
Study smarter with the SolutionInn App