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Student's Model ATLAS METALS COMPANY Esmblishing the Optimal Capital Budget This case illusnates basic cost of capital calculations, the construction...

With the given inputs, are my calculations of the capital structure, breakpoints, and component costs right? Also, would I use the retained earnings from the balance sheet in any of these or any WACC calculations?



Esmblishing the Optimal Capital Budget This case illusnates basic cost of capital calculations, the
construction ofthe marginal cost of capital and investment oppor-
tunity schedules, and the development ofthe optimal capital budget. The model develops the firm's market value capital structure, component
costs, MCC schedule assuming two break points and available depreciation
generated funds. The model could easily be expanded to include more
break points in the MCC schedule, but most firms do not precisely define
their MCC break schedules past the retained earnings break point. Ifyou are using the student version of the model, some ofthe cells have been blanked
All of the formulas and inputs have been blanked out but not labels. Before using the model, it is necessary to fill in the empty cells with the appropriate for
Once this is done, the model is ready for use. INPUT DATA: Short-Term Debt: Total $ amount $29.010.000
Marginal cost rate 7,00%
Long-Term Debt:
Total $ amount $121.326.000
Par value $1.000
Years to maturity 10
Coupon rate 8,00%
Current req return 9,00%
Add. sr. debt $41.000.000 Marginal cost rate: Senior debt 9,5 0%
Junior debt 11,80%
Preferred Stock:
Total $ amount 336.010.000
Par value $100
Dollar dividend $12,69
Flotation costs $6,00
Common Stock:
Common stock $2 1 1 . 140.000
Retained earnings $29.587.000
Shares outstanding 8.500.000
Current price $24,84
New issue net price $20,34
Other Data:
Div. payout ratio 30%
Dep. expense $8.249.000
Tax rate 40%
1998 Earnings available to
com. stockholders $49.470.000
1998 EPS (est) $5,82
1988 EPS $3,18
growth (% previous) 125% MODEL-GENERATED DATA: Market Value Capital Structure: # bonds outstanding 121.326 Type of Financing Market Value % Short-term debt $29.010.000 7% Long term debt $113.539.713 29%
Total debt $142.549.713 37% Preferred stock $36.010.000 9% Common equity $211.140.000 54% Total financing $389.699.713 100% Retained Earnings Break Point: REBP = “3.914.518
REBPinc. dep. $72.163.518
Debt BP = $140.723.346
Debt BP inc, dep. $148.972.346
Dividend Data:
Div. growth rate 7,79%
End-of—year div. $1,75
Component Costs:
Short-term debt 4,20% 7,00%
Long-term debt:
First interval 5,70% 9,5 0%
Second interval 7,08% 11,80%
Preferred stock 13,50%
Retained earnings 14,82% New common stock 16,37%

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