A firm has determined its optimal structure which is composed

A firm has determined its optimal structure which is composed
Customer Question
A firm has determined its optimal structure which is composed of the following sources and target market value proportions.

source of capital target market proportions
Long term debt 60%
common stock equity 40%

Debt: The firm can sell a 15-year, $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50.
Common Stock: A firm’s common stock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.10. It is expected that to sell, a new common stock issue must be underpriced $2 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent.

The firm’s before-tax cost of debt is ________. (See Table 11.2.)
A) 7.7 percent.
B) 10.6 percent.
C) 11.2 percent.
D) 12.7 percent.

The firm’s after-tax cost of debt is ________. (See Table 11.2.)
A) 4.6 percent.
B) 6 percent.
C)7 percent.
D) 7.7 percent.

The firm’s cost of a new issue of common stock is ________. (See Table 11.2.)
A) 10.2 percent.
B)14.3 percent.
C)16 .7 percent.
D) 17.0 percent.

The firm’s cost of retained earnings is ________. (See Table 11.2.)
A) 10.2 percent.
B) 14.3 percent.
C) 16.7 percent.
D) 17.0 percent.

The weighted average cost of capital up to the point when retained earnings are exhausted is ________. (See Table 11.2.)
A)6.8 percent.
B)7.7 percent.
C) 9.44 percent.
D) 11.29 percent.

Assuming the firm plans to pay out all of its earnings as dividends, the weighted average cost of capital is ________. (See Table 11.2.)
A) 9.6 percent.
B) 10.9 percent.
C)11.6 percent.
D) 12.1 percent.

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more