MGFC10mt_F13_Assg1_F2014.pdf - MGFC10H3(Intermediate Finance Assignment 1 Due Date Wed October 8 2014 for L02 L03 Thurs October 9 2014 for L01 L04 at

MGFC10mt_F13_Assg1_F2014.pdf - MGFC10H3(Intermediate...

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MGFC10H3 (Intermediate Finance) Assignment 1 Due Date: Wed October 8, 2014 for L02 & L03 Thurs October 9, 2014 for L01 & L04 at the beginning of your section Professor: Syed Ahmed STUDENT’S NAME:________________________________________________ Last First Middle STUDENT’S I.D. NO.:_______________________________________________ QUESTION NO. MAX. MARKS MARKS OBTAINED 1 25 __________________ 2 25 __________________ 3 25 __________________ 4 25 __________________ TOTAL MARKS 100 __________________
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-2- QUESTION 1: a. MGFC10 Industries (MI) has 1 million shares of common stock outstanding. The current share price is $50 per share. The most recent dividend was $6 and the growth rate is -2%. MI also has a bond issue outstanding, which is maturing in 20 years, has a face value of $40 million, 7% coupon payable annually, and sells for 111.46992% of the face value. MI also has 500,000 preferred shares outstanding, which are currently selling for $70 per share and pay a dividend of $4.90 per year. The corporate tax rate is 40%. Determine the weighted average cost of capital? b. LeverHigh Inc has a target debt/equity ratio of 2, weighted average cost of capital of 10% and the corporate tax rate of 30%.
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