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Coogly Company is attempting to identify its weighted average cost of capital for the coming year

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Question;Coogly Company is attempting to identify its weighted;average cost of capital for the coming year and has hired you to answer some;questions they have about the process. They have asked you to present this;information in a PowerPoint presentation to the company?s management team. The;company would like for you to keep your presentation to approximately 10 slides;and use the notes section in PowerPoint to clarify your point. Your;presentation should address the following questions and offer a final recommendation;to Coogly. Make sure you support your answers and clearly explain the;advantages and disadvantages of utilizing the weighted average cost of capital;methodology. Include at least one graph or chart in your presentation.;Company Information;The capital structure for the firm will be maintained and is;now 10% preferred stock, 30% debt, and 60% new common stock. No retained;earnings are available. The marginal tax rate for the firm is 40%.;A. Coogly;has outstanding preferred stock That pays a dividend of $4 per share and sells;for $82 per share, with a floatation cost of $6 per share. What is the;component cost for Coogly's preferred stock? What are the advantages and;disadvantages of using preferred stock in the capital structure?;B. If the;company issues new common stock, it will sell for $50 per share with a;floatation cost of $9 per share. The last dividend paid was $3.80 and this;dividend is expected to grow at a rate of 7% for the foreseeable future. What;is the cost of new equity to the firm? What are the advantages and;disadvantages of issuing new equity in the capital structure?;C. The;company will use new bonds for any capital project, according to the capital;structure. These bonds will have a market and par value of $1000, with a coupon;rate of 6% and a floatation cost of 7%. The bonds will mature in 20 years and;no other debt will be used for any new investments. What is the cost of new;debt? What are the advantages and disadvantages of issuing new debt in the;capital structure?;D. Given the;component costs identified above and the capital structure for the firm, what;is the weighted average cost of capital for Coogly? What are the advantages and;disadvantages of using this method in the capital budgeting process?

 

Paper#41269 | Written in 18-Jul-2015

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