Mini_Case_Chapter_9_7th_Ed._

# Mini_Case_Chapter_9_7th_Ed._ - Chapter 9 Mini Case Remember...

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Chapter 9- Mini Case Remember: The firm's cost is just the return you got when you solved for I in the time value of money questions. Question is the Weighted Cost of Capital (WACC) Data Given: Flotation Costs Bond 15.00%of mkt. price Preferred Stock \$2.01per share Dividends- Common \$2.50Last year Growth 6.00% Preferred \$1.50per share Tax Bracket 34.00% Type of Financing Bonds Pmt. = \$80.008% coupon rat FV = \$1,000.00par value N = 16maturity % 38.00%% of capital Preferred Stock # shares = 5,000given Par \$50.00given Dividend \$1.50given % 15.00%% of capital Common Equity % 47.00%% of capital A. Mkt. Price bonds = \$1,035.00 Mkt. Price Preferred Stock = \$19.00

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Mkt. Price Common Stock = \$35.00 (Won't need to issue new stock!) (Will use retained earnings, i.e. n Cost of Debt Remember- Are flotation costs so not receive ma Interest payments a NPd = sum of PV of future cash f N = 16 Pmt. = \$80.00 FV = \$1,000.00 PV = Npo \$879.75 Market Price \$1,035.00 Flotation Cost (1 \$155.25 I = Kd = 9.49% 6.26% Cost of Preferred Stock Remember- Are flotation costs so not receive ma Dividend payments Kps = D/Npo
Dividend \$1.50 Npo Market Price \$19.00 Flotation Cost \$2.01 Npo \$16.99 Kps = 8.83% Value of a perp Cost of Internal Common Stock Remember- Are no flotation cost not have to iss Dividend payments Kcs = (D1/Po) + g Dividend (D1) Do \$2.50 Growth rate 6.00% D1 \$2.65 Po \$35.00 Kcs = 13.57% Value of a perp WACC Cost to Company PerCent Debt 6.26% 38.00% PS 8.83% 15.00% CS 13.57% 47.00% WACC = 10.08% 100.00% B. Raising external common equity. Remember- Are flotation costs since the company does have to issue new stock

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Dividend payments are NOT tax deductable Kncs = D1/Npo + g (Cost of new c market price = \$35.00 flotation costs= \$2.45 Npo = \$32.55 Dividend paid= \$2.50 Growth rate= 6.00% D1= \$2.65 Kncs= \$2.65/\$32.55 + 6% Kncs = 14.14% WACC Cost to Company PerCent Debt 6.26% 0.38 PS 8.83% 0.15 NewCS 14.14% 0.47 WACC = 10.35% 100.00% New WACC is higher because the
Chapter 11- Comprehensive Problem A. WACC = 10.08% B. Kncs = 14.14% WACC = 10.35%

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te, \$1,000 par value (Irrelevant here) (Irrelevant here)
) no flotation costs) o company does arket price are tax deductable flows Money firm gets before tax after tax = (1 - Tax) x % =(1-.34)x9.49% o company does arket price s are NOT tax deductable Npo = D/Kps

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(Net proceeds, i.e. what co. gets after paying flotation costs.) 1.50/16.99 rpetuity ts since the company does sue new stock s are NOT tax deductable (1 + .06) x 2.50 Next dividend (2.65/35) + .06 rpetuity with growth
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Mini_Case_Chapter_9_7th_Ed._ - Chapter 9 Mini Case Remember...

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