Question 1

Describe the process by which new stock (or a new bond series) is issued in order for a company to raise capital.

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Question 2

The Expanding Capital Corporation has a current capital structure of $15 million in secured bonds paying 6.5% annual interest, $10 million in preferred stock with a par value of $50 per share and an annual dividend of $3.80 per share, and common stock with a book value of $75 million. It is about to issue new debentures in the amount of $10 million paying 7.5% annual interest. Its CFO says its marginal tax rate is 30% and its cost of common equity capital is 12%. Calculate the company's Weighted Average Costs of Capital for the following:

A) Before the new bond issue

B) After the new bond issue

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Question 3

In Week #3, we studied capital budgeting and the use of an implied interest rate (cost of capital) is key in the net present value (NPV) model. In Week #4 and this week, we studied how to compute the cost of capital for an enterprise.

A ) Please compose at least three paragraphs that discuss the connection between capital budgeting decisions and the enterprise's cost of capital.

B) Would an enterprise ever decide to embark on a project whose rate of return would be less than its cost of capital? Why or why not?

Utilize A P A formatting