CapitalProblems - Ch. 9: Cost of Capital 1. Bendex...

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Ch. 9: Cost of Capital 1. Bendex Corporation Bendex Corporation has a capital structure consisting of 40% debt and 60% equity. The firm is planning to raise $25 million to finance its capital investment projects. Bendex can raise debt funds through bank loans at a pretax cost of 9%. A bond issue would have a pretax cost of 10%. Bendex's common stock dividend is presently $2 per share. Bendex common is selling now for $25 per share. New common stock could be sold for $25 per share. Flotation costs would amount to $1.50 per share. Over the past several years, Bendex's earnings and dividends have grown at an average of 7% per year, and this growth rate is expected to continue for the foreseeable future. Bendex has a marginal tax rate of 40%. Given this information, calculate Bendex's weighted (marginal) cost of capital. STEP 1 : What is the financing mix? (What is the firm's desired capital structure?) STEP 2 : Calculate the costs of the individual sources of funds.
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This note was uploaded on 12/07/2010 for the course ACG 3361, 4401 taught by Professor Goldwater,canada,judd,byrd,theniel during the Spring '10 term at University of Central Florida.

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CapitalProblems - Ch. 9: Cost of Capital 1. Bendex...

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