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MC Qu. 80 Bleakly Enterprises has a capital structure




MC Qu. 80 Bleakly Enterprises has a capital structure...;Bleakly Enterprises has a capital structure of 50 percent common stock, 15 percent preferred stock, and 35 percent debt. The flotation costs are 3 percent for debt, 8 percent for preferred stock, and 6 percent for common stock. The corporate tax rate is 33 percent. What is the weighted average flotation cost if the company finances new assets using new debt, new shares of preferred stock, and Retained Earnings? Assume the company maintains the current capital structure.;Hint: What is the floatation cost of Retained Earnings?;2.25;1.55;1.95;2.35;1.45;P14-15 Finding the WACC [LO3];Consider the following information for Evenflow Power Co.;Debt: 5,000 8 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 103 percent of par, the bonds make semiannual payments and have a YTM of 7.69%.;Common stock: 120,000 shares outstanding, selling for $64 per share, the beta is 1.12.;Preferred stock: 14,000 shares of preferred stock outstanding that pay an annual dividend of 7 percent, selling for $105 per share.;Market: 10 percent market risk premium and 7 percent risk-free rate.;--------------------------------------------------------------------------------;Assume the company's tax rate is 34 percent.;Required: Find the WACC. (Do not round your intermediate calculations.);HINT: Use the Security Market Line to get the cost of the common equity. Use the perpetuity equation to get the cost of preferred equity. Don't forget to adjust the cost of debt for taxes (and don't bother to convert the YTM into an EAR, but leave it as an APR). You will also need to calculate the market value of all three types of securities to get the capital structure weights. Now you are ready to get the WACC.;12.19%;12.42%;12.69%;13.23%;12.29%;Central Systems, Inc. has a weighted average cost of capital of 8 percent. The firm has an after-tax cost of debt of 4 percent and a cost of equity of 12 percent. What is the firm's debt-equity ratio?;HINT: First get the capital structure weights. Remember they must both sum to one, so (1 - D/V) = E/V.;Now use those weights to get the debt-equity ratio.;.90;1.00;1.17;1.10;.83


Paper#33374 | Written in 18-Jul-2015

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