Shinedown Company needs to raise $150 million to start a new project and will raise the money byselling new bonds. The company will generate no internal equity for the foreseeable future. Thecompany has a target capital structure of 60 percent common stock, 10 percent preferred stock, and30 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stockare 3 percent, and for new debt, 2 percent. What is the true initial cost figure the company should usewhen evaluating its project? (Do not round intermediate calculations and enter your answer in dollars,not millions of dollars, rounded to the nearest whole number, e. g., 1,234, 567.)

To determine the true initial cost figure, Shinedown Company calculates the weighted average…

Answered: Shinedown Company needs to raise $150…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

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Shinedown Company needs to raise $140 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Flotation costs for issuing new common stock are 8 percent, for new preferred stock are 5 percent, and for new debt, 3 percent. What is the true initial cost figure the company should use when evaluating its project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
Shinedown Company needs to ralse $55 million to start a new project and will ralse the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 65 percent common stock, 15 percent preferred stock, and 20 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 8 percent, and for new debt, 5 percent. What is the true initial cost figure the company should use when evaluating its project? (Do not round Intermedlate calculations and enter your answer In dollars, not mlllons, rounded to the nearest whole number, e.g., 1,234,567.) Initial cost
Shinedown Company needs to raise $55 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 70 percent common stock, 15 percent preferred stock, and 15 percent debt. Flotation costs for issuing new common stock are 9 percent, for new preferred stock, 6 percent, and for new debt, 2 percent. What is the true initial cost figure the company should use when evaluating its project?
Cully Company needs to raise $23 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 8 percent, for new preferred stock, 6 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project? $23,589,744 $24,472,000 $24,572,650 $21,620,000 $25,555,556
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Neverlever, Inc. Is trying to decide how best to finance a proposed P10 million capital investment. Under Plan A, the project will be financed entirely with long term 9% bonds. The firm currently has no debt or preferred stock. Under Plan B, common stock will be sold to net the firm P20.00 per share; presently one (1) million shares are outstanding. The corporate tax rate is 25%. The company is expected to have an EBIT amounting to P3.0M. Required: 1. What will be the firm’s ROE next year if the firm issues new common stock? 2. What will be the firm’s ROE next year if the firm issues 9% bonded indebtedness?
Blue Inc.’s has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. Blue Inc.’s stock currently has a price of P50 per share and is expected to pay a year-end dividend of P5 per share. The dividend is expected to grow at a constant rate of 2% per year. The new stock has an estimated flotation cost of P5 per share. What is the company’s cost of equity capital? a. 11.11% b. 12.23% c. 13.11% d. 14.00%
AX Co. needs financing a new project. Issue costs would be 3% of market value for a new bond issue, $0.2 per share for ordinary shares, $0.1 per share for preference shares. The ordinary share dividends for next year will be $0.5 and are projected to have an annual growth rate of 5%. What is the weighted cost of capital if the firm finances in the proportions shown in the financing structure table? Market prices are $101 for bonds, $5 for preference shares and $10 for ordinary shares. There will be $25,000 retained profits available. The company tax rate is 30%. Financing structure table for the new project of AX Co. Type of financing Bonds (8%, $100 par, 5-yeare maturity) Percentage of financing 40 Preference shares (4,000 shares outstanding, $0.3 dividend per share) 20 Ordinary equity 40 Total 100

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