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

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Chris Bergman Principles of Finance SECTION 25049 OPC 004 christopherbergman@g.austincc.edu 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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This note was uploaded on 02/02/2009 for the course BUSG 1303 taught by Professor Schwartz during the Fall '08 term at University of Cincinnati.

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

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