Question: need help asap please?!?!?? sorry here is the rest i forgot to add During the last few years, Jana Industries has been too constrained by



During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana's cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm's tax rate is 25%. The current price of Jana's 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. There are 70,000 bonds. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm's 10%, $100 par value, quarterly dividend, perpetual pre- ferred stock is $116.95. There are 200,000 outstanding shares. Jana would incur flota- tion costs equal to 5% of the proceeds on a new issue. Jana's common stock is currently selling at $50 per share. There are 3 million outstanding common shares. Its last dividend (D) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana's beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus- judgmental-risk-premium approach, the firm uses a 3.2% risk premium. . 1. What procedures can be used to estimate the risk-adjusted cost of capital for a par- ticular division? What approaches are used to measure a division's beta? m. Jana is interested in establishing a new division that will focus primarily on develop- ing new Internet-based projects. In trying to determine the cost of capital for this new division, you discover that specialized firms involved in similar projects have, 1. What procedures can be used to estimate the risk-adjusted cost of capital for a par- ticular division? What approaches are used to measure a division's beta? m. Jana is interested in establishing a new division that will focus primarily on develop- ing new Internet-based projects. In trying to determine the cost of capital for this new division, you discover that specialized firms involved in similar projects have, on average, the following characteristics: Their capital structure is 10% debt and 90% common equity; their cost of debt is typically 12%; and they have a beta of 1.7. Given this information, what would your estimate be for the new division's cost of capital? n. What are three types of project risk? How can each type of risk be considered when thinking about the new division's cost of capital? o. Explain in words why new common stock that is raised externally has a higher per- centage cost than equity that is raised internally by reinvesting earnings. p. What four common mistakes in estimating the WACC should Jana avoid? a During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana's cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm's tax rate is 25%. The current price of Jana's 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. There are 70,000 bonds. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm's 10%, $100 par value, quarterly dividend, perpetual pre- ferred stock is $116.95. There are 200,000 outstanding shares. Jana would incur flota- tion costs equal to 5% of the proceeds on a new issue. Jana's common stock is currently selling at $50 per share. There are 3 million outstanding common shares. Its last dividend (D) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana's beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus- judgmental-risk-premium approach, the firm uses a 3.2% risk premium. . 1. What procedures can be used to estimate the risk-adjusted cost of capital for a par- ticular division? What approaches are used to measure a division's beta? m. Jana is interested in establishing a new division that will focus primarily on develop- ing new Internet-based projects. In trying to determine the cost of capital for this new division, you discover that specialized firms involved in similar projects have, 1. What procedures can be used to estimate the risk-adjusted cost of capital for a par- ticular division? What approaches are used to measure a division's beta? m. Jana is interested in establishing a new division that will focus primarily on develop- ing new Internet-based projects. In trying to determine the cost of capital for this new division, you discover that specialized firms involved in similar projects have, on average, the following characteristics: Their capital structure is 10% debt and 90% common equity; their cost of debt is typically 12%; and they have a beta of 1.7. Given this information, what would your estimate be for the new division's cost of capital? n. What are three types of project risk? How can each type of risk be considered when thinking about the new division's cost of capital? o. Explain in words why new common stock that is raised externally has a higher per- centage cost than equity that is raised internally by reinvesting earnings. p. What four common mistakes in estimating the WACC should Jana avoid? a
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