Company XYZ has 40% debt 60% equity as its optimum capital structure. The company's nominal interest rate is 12% up to $5 million in debt, above which the interest rate rises to 14%. Expected net income for the year is $17.5 million, dividend payout rate is 45%, final dividend is $4.5 per share, P0 = $37, g=5%, IPO cost is 10% and corporate tax rate is 40% .

A. Find breakpoints

B. Calculate component costs (cost of each funding source)

C. Calculate WACCs.

D. Two projects are available: 1 st. Project requires 15 million initial investment, IRR=18% 2. Project requires 10 million initial investment, IRR=12%

find the most suitable capital budget. (Project(s) to be invested .

Answer rating: 100% (QA)

A Breakpoints The breakpoint is the point at which the cost of each additional dollar of financing c... View the full answer