case 19 can one size fit all

case 19 can one size fit all - 7.26 = 0.01234 Equty 0.83...

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Proportion of each ofroway of capital * cost of each form o fcapital E Proprtion of each form 1- MKT valve of each form 2- Totla the MKT VALVE 3- Divide MKT valve of each form into the total MV of all forms His suggest Use book Valve Long term Debt 40,000,000 40% 40% will be debt and 60% will be common stock COM EQUTY 60,000,000 60% Sub total 100,000,000 Market value Debt 40,000,000 / 1000 = 36,600,000 equty 5,000,000 * 35 = 175,000,000 83% sub total 211,600,000 100% Cost of debt: CPT I/Y PV = 915;+/- FV = 1,000 N = 100;N PMT = 25;PMT Qualty 10%*1000/4 CPT I/Y = 2.75% 2.75 * 4 = 11% APR 0.11 * (1-0.34) = 7.26% Cost of Equty` CAPM = RFR + b(ERM-RFR) 0.04 + 1.5*(0.1-0.04) = 0.13 Gorden = D1/P0 + G(grow rate of div) 0.8286% + 0.16499305 = 17.33% Debt 0.17 *

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Unformatted text preview: 7.26% = 0.01234 Equty 0.83 * 15.17% = 0.12591 0.13825 Long term Debt 40,000,000 40% 40% will be debt and 60% will be common stock COM EQUTY 60,000,000 60% Sub total 100,000,000 Market value Debt 40,000,000 / 1000 = 36,600,000 equty 5,000,000 * 35 = 175,000,000 83% sub total 211,600,000 100% Cost of debt: CPT I/Y PV = 915;+/- FV = 1,000 N = 100;N PMT = 25;PMT Qualty 10%*1000/4 CPT I/Y = 2.75% 2.75 * 4 = 11% APR 0.11 * (1-0.34) = 7.26% Cost of Equty` CAPM = RFR + b(ERM-RFR) 0.04 + 1.5*(0.1-0.04) = 0.13 Gorden = D1/P0 + G(grow rate of div) 0.8286% + 0.1649931 = 17.33% Debt 0.17 * 7.26% = 0.01234 Equty 0.83 * 15.17% = 0.12591 0.13825...
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This note was uploaded on 04/09/2012 for the course FIN 433 taught by Professor Slon during the Spring '12 term at Case Western.

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case 19 can one size fit all - 7.26 = 0.01234 Equty 0.83...

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