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CompU has a target capital structure of 30 percent debt

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1. CompU has a target capital structure of 30 percent debt and 70 percent equity. It has $280,000 in retained earnings. CompU?s investment banking firm has advised them that they can issue $300,000 of secured debt. The $300,000 issue will consist of 10-year, $1,000 par value bonds that pay 9% and can be sold for $938.55. Flotation costs for debt is negligible and can be ignored. Flotation costs for new common stock are $1 per share, the expected stock price is $7.00. The last dividend paid was $0.80 and they expect the dividends to grow at a constant growth rate of 6% into the foreseeable future. CompU?s marginal tax rate is 40%.;What is the after-tax cost of debt;Additional Requirements;Level of Detail: Show all work

 

Paper#18045 | Written in 18-Jul-2015

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