Solved by Expert Tutors
Solved by Expert Tutors

XYZ Company has 40% debt 60% equity as optimal capital structure.

The nominal interest rate for the company is 12% up to $5 million debt, above which interest rate rises to 14%. Expected net income for the year is $17,5 million, dividend payout ratio is 45%, last dividend distributed was $4,5/share, P0 = $37, g=5%, flotation costs 10% and corporate tax rate is 40%.
a. Find the break points
b. Calculate component costs (cost of each financing source)
c. Calculate WACCs.
d. Two projects are available: 1 st. Project requires 15 million initial investments, IRR=18% 2 nd. Project requires 10 million initial investments, IRR=12% Please find the optimal capital budget. (Project(s) to be invested in) 

Step-by-step answer

sque dapibus efficitur laoreet

s ante, dapibus a molestie conse

sque dapibus efficitur laoreet. Nam

entesque dapibu

sque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ip

acinia pulvi



Subscribe to view the full answer

Subject: Business, Finance

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Let our 24/7 Finance tutors help you get unstuck! Ask your first question.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes