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Bergman case10

# Bergman case10 - = 46.96 Preferred Stock The dollar...

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Chris Bergman Principles of Finance SECTION 25049 OPC 004 Case 10 a . The cost of retained earnings = \$.96/ \$12 + .11 = 19% Long-term debt of first \$450,000: The before tax cost of debt= n= 15 PV= -960 PMT= \$1000 x 9%= \$90 FV= \$1,000 i= 9.51% The after tax cost of debt = 9.51% (1-40%) = 5.71% Long-term debt greater than \$450,000 : The before tax cost of debt = 13% The after tax cost of debt = 13% (1-40%) = 7.8% New common stock first \$1,500,000 Np= \$9 Ks = \$.96/ \$9 +.11 = 21.67% New common stock greater than \$1,500,000 Np= \$9 Ks= \$3.20/ \$9 +.11

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Unformatted text preview: = 46.96 Preferred Stock The dollar dividend amount = 14% x \$70 = \$9.80 Kp= \$9.80/ \$65 = 15.08% b. break point of retained earnings \$1,500,000 / .60 = \$2,500,000 c. WACC below = (.30x.0571) + (.10x.1508) + (.60x .19) = 14.62% WACC above = (.30x.0571) + (.10x.1508) + (.60x .2167) = 16.22% 4. Answer KEY Missing answer -4 5. Projects C, D, B, F, and E should be accepted, because each has an IRR greater than the WACC. These projects will require \$2,400,000 in new financing. (answer key missing answer -2) GRADE 28/34...
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Bergman case10 - = 46.96 Preferred Stock The dollar...

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