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Crypton Electronics has a capital structure consisting of 40% common stock and 60% debt. A debt issue of $1000

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Question;Crypton Electronics has a capital structure consisting of 40% common;stock and 60% debt. A debt issue of $1000 par value, 50% bonds that;mature in 15 years and pay annual interest will sell for $975. Common;Stock of the firm is currently selling for $30.83 per share and the firm;expects to pay a $2.28 dividend next year. Dividends have grown at the;rate of 4.7% per year and are expected to continue to do so for the;foreseeable future. What is Crypton's cost of capital where the the;firm's tax rate is 30%?Crpton's cost of capital is _______%. (round to three decimal places.)2.;(WACC) The target capital sturctue for Jowers Manufacturing is 45%;common stock, 11% preferred stock, and 44% debt. If the cost of common;equity for the firm is 19.5%, the cost of preferred stock is 11.9%, and;the beforetax cost of debt is 10.4%, what is Jowers' cost of capital?;The firm's tax rate is 34%.Jowers' WACC is ______%. (Round to three decimal places.)3.;(WACC) As a member of the Finance Department of Ranch Manufacturing;your supervisor has asked you to compute the appropriate disxount rate;to use when evaluating the purchase of new packaging equipment for the;plant. Under the assumption that the firm's present capital structure;reflects the appropriate mix of capital sources for the firm, you have;determined the market value of the firm's capital structure as follws:Source of Capital Market ValuesBonds $4,500,000Preferred stock $2,100,000Common Stock $6,200,0004.;(EBIT-EPS analysis) Abe Forrester and three of his friends from college;have interested a group of venture capitalists in backing their;business idea. The proposed operation would consist of a series of;retail otlets to distribute and service a full line of vacuum cleaners;and accessories. Theese stores would be located in Dallas, Houston, and;San Antonio. To finace the new venture two plans have been propsed:-plan A is an all-common-equity strucre in which $2.1 million dollars would be raised by selling 82,000 shares of common stock.-Plan;B would nvolve issuing $1.4 million dollars in long-term bonds wit an;effective interest rate of 12.4% plus $0.7 million wold be raised by;selling 41,000 shares of common stock. The debt fnds raised under Plan B;have no fixed maturity date, in that this amount of financial leverage;is considered a permanent part of the firm's capital structure.Abe;and his partners plan to use a 38% 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 B is chosen.a. Find the EBIT indifference level associated with the two financing plans is $________. (round to the nearest dollar.)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 B is chosen.Complete the segment of the income statement for;Plan A below: (round income statement amounts to the nearest dollar;except the EPS to the nearest cent.)Stock PlanEBIT $____________Less: Interest expense ____________Earnings before taxes ______________Less: Taxes at 38% _____________Net Income ____________Number of Common Shares ____________EPS ____________Complete;the segment of the income statement for Plan B below: (round income;statement amounts to the nearest dollar except the EPS to the nearest;cent.)Bond/Stock PlanEBIT $____________Less: Interest Expense ____________Earnings Before Taxes ____________Less: Taxes at 38% ____________Net Income ____________Number of common shares ____________EPS

 

Paper#50931 | Written in 18-Jul-2015

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