Solved by Expert Tutors
Solved by Expert Tutors
Question

# On January 1, the total market value of the Tysseland Company was

\$60 million. During the year, the company plans to raise and invest \$30 million in new projects. The firm's present market value capital structure, shown below, is considered to be optimal. Assume that there is no short-term debt.

New bonds will have an 6% coupon rate, and they will be sold at par. Common stock is currently selling at \$30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is \$1.20, so \$1.20/\$30 = 4%.) The marginal corporate tax rate is 30%.

1) In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Enter your answer in dollars. For example, \$1.2 million should be entered as \$1200000. Round your answer to the nearest dollar. Do not round intermediate calculations

2) Assuming there is sufficient cash flow such that Tysseland can maintain its target capital structure without issuing additional shares of equity, what is its WACC? Round your answer to two decimal places. Do not round intermediate calculations.

3)Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking, what will happen to the WACC?

I. rs will increase and the WACC will decrease due to the flotation costs of new equity.
II. rs will decrease and the WACC will increase due to the flotation costs of new equity.
III. rs and the WACC will not be affected by flotation costs of new equity.
IV. rs and the WACC will increase due to the flotation costs of new equity.
V. rs and the WACC will decrease due to the flotation costs of new equity

a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel

ac, dictum vit

consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ant

acinia pulvi

usce

ur laoreet. Nam risus ante, dapibus a

inia pulvinar tortor nec facilis

ia pulvinar tortor nec faci

m ipsum dolor sit amet, cons

consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facil

cti, dictum vita

fficitur laoreet.

nec facilisis. Pellentesque dapibus eff

lestie consequat, u

m risus ante, dapibus a

m risus ante, dapibus a

gue vel laoreet ac, dictum

facilisis. Pellentesque dapibus

ongue vel laoreet ac, dic

m risus ante, dapibus a mole

ce dui lectus, co

facilisis

aci

m ipsum dolor sit a

pulvinar tortor nec facilisis. Pellentesque 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

ec facilisis. Pellentesque dapibus ecing elit. Ncing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus

### 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