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FIN 370 Week 4, MyFinanceLab

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Question;FIN 370 Week 4, MyFinanceLab;1. The target capital structure for Jowers;Manufacturing is 50 percent common stock, 15 percent preferred stock, and 35;percent debt. If the cost of equity for the firm is 20 percent;the cost of;preferred stock is 12 percent, and the before-tax cost of debt is 10 percent;what is Jower?s cost of capital? The firm?s marginal tax rate is 34 percent.;2. (Weighted;average cost of capital) The target capital structure for QM Industries is 40;percent common stock, 10 percent preferred stock, and 50 percent debt.;If the cost of;equity for the firm is 18 percent, the cost of preferred stock is 10 percent;the before-tax cost of debt is 8 percent, and the firm's tax rate is 35;percent;what is QM's;weighted average cost of capital?;3. Crypton;electronics has a capital structure consisting of 41% common stock and 59%;debt, a debt issue of 1000 par value, 6.4 bonds that matures in 15 years and;pays an annual interest well sell for $973. Common stock of the firm is selling;for 30.49 per share and the firm expects to pay a 2.24 dividend next year.;Dividends have grown at the rate of 5.3% per year and expected to continue to;do so for the foreseeable future. What is Cryptons cost of capital where the;firms tax rate is 30%;4. As a member;of the finance department of ranch manufacturing, your supervisor has asked you;to compute the appropriate discount rate to use when evaluating the purchase of;new packaging equipment for the plant under the assumption that the firms;present capital structure reflects the appropriate mix of capital source for;the firms, you have determined the market value of the firm?s capital structure;as follows Bonds $4,500,000, preferred stock $2,300,000, common stock $;6,200,000. To finance the purchase ranch manufacturing will sell 10 year bonds;paying 6.9 % per year @ a market price of 1,055.preferred stock paying $2.02;dividend can be sold for 25.37 common stock for ranch manufacturing is;currently selling for 55.14 per share and the firm paid a 3.07 dividend last;year. Dividend are expected to continue growing at a rate of 4.7 per year into;the indefinite future, if the firms tax rate is 30% what discount rate should;you use to evaluate the equipment purchased.;Ranch manufacturing;company WACC is _____________ round 3 decimal places.;5.Abe Forrester and three Of his friends from college have interested a;group of venture capitalists in backing their. The proposed operation would;consist of a series of retail outlets to?Distribute and service a full line of vacuum;cleaners and accessories. These stores would?Be located in Dallas, Houston, and San;Antonio. To finance the new venture two plans?Have been proposed:?Plan;A is an all-common-equity structure in which $2.3 million dollars would be;raised?By;selling 80,000 shares of common stock.?Plan B would involve issuing $1.1 million;dollars in long-term bonds with an effective?Interest rate of 12.1% plus another $1.2;million would be raised by selling 40,000 shares?Of common stock. The debt funds raise funder;Plan B have no fixed maturity date, in?That this amount of financial leverage is;considered a permanent part of the firm?Capital structure. Abe and his partners plan;to use a 34% tax rate in their analysis, and they have hired?You;on a consulting basis to do the following;A. Find the EBIT;indifference level associated with the two financing plans.;B. Prepare a pro;forma income statement for the EBIT level solved for in Part a. that shows that;EPS will be the same regardless whether Plan A or Plan B is chosen;6. Three;recent graduates of the computer science program at the University of Tennessee;are forming a company that will write and distribute new application software;for the iPhone. Initially, the corporation will operate in the southern region;of Tennessee, Georgia, North Carolina and South Carolina. A small group of;private investors in the Atlanta, Georgia are interested in financing the;startup company and two financing plans have been put forth into consideration.;The first plan(A) is;an all common equity capital structure $2.4 million dollars would be raised by;selling common stock at $10 per common share.;Plan B would involve;the use of financial leverage. $1.2 million would be raised by selling bonds;with an effective interest rate of 11.2% and the remaining 1.2 mill would be;raised by selling common stock at the $10 price per share. The use of financial;leverage is considered to be a permanent part of the firms capitalization, so;no fixed date is needed for the analysis. A 35% tax rate is deemed appropriate;for the analysis.;A. Find the EBIT;indifference rate associated with the two financing problems;B.A detailed;financial analysis of the firms prospects suggests that the long term EBIT will;be above $300,000 annually. Taking this into consideration, which plan will;generate the higher EPS?

 

Paper#47586 | Written in 18-Jul-2015

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