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##### Capital Structure- The corporate treasurer of Ajax Company expects the company to grow at 4% in the future

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Capital Structure;1;The corporate treasurer of Ajax Company expects the company to grow at;4% in the future, and debt securities;at 6% interest (tax rate = 30%) to be a cheaper option to finance the growth.;The current market price per share;of its common stock is \$39, and the expected dividend in one year is \$1.50 per share. Calculate the cost of the company's;retained earnings and check if the treasurer's assumption is correct.;2;The risk-free rate on 10-year U.S. Treasury bills is 3% and the expected rate of return on the overall stock market is 11%.;The company has a beta of 1.6. What is the cost of equity?;3;A company has a capital structure as follows;Total Assets;\$600,000;Debt;\$300,000;Preferred Stock;\$100,000;Common Equity;\$200,000;What would be the minimum expected return from a new capital investment;project to satisfy the suppliers of the capital?;Assume the applicable tax rate is 40%, interest on debt is 11%, flotation cost;per share of preferred stock is \$0.75, and;flotation cost per share of common stock is \$4. The preferred and common;stocks are selling in the market for \$26 and \$143;a share respectively, and they are expected to pay a dividend of \$2 and \$7, repectively, in one year. The company's dividends;are expected to grow at 13% per year. The firm would like to maintain the;existing capital structure to finance the new;project.;4;Required rate of return is 10%.;Net Cash Flow;Year;Project A;Project B;0;-\$2,000;-\$2,500;1;\$900;\$1,500;2;\$1,100;\$1,300;3;\$1,300;\$800;a;Calculate the payback period for each project.;b;Calculate the net present value for each project.;c;Which project do you think will be approved, if only one project can be approved? Why?;d;What if the required rate of return was 20%?;5;A corporate bond has a face value of \$1,000 and an annual coupon interest;rate of 7%. Interest is paid annually.;10 years of the life of the bond remain. The current market price of the bond;is \$872. To the nearest whole percent;what is the yield to maturity (YTM) of the bond today?;6;Ajax Manufacturing dividend is \$8 per share of common stock in one year. The dividend growth rate

Paper#76970 | Written in 18-Jul-2015

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