On January 1, 2009 the total assets of the Shipley Company were $ 180 million. During theyear, the company plans to raise and invest $ 90 million. The firm's present capital structure isconsidered optimal.Assume that there is no short term debt. Long term debt 90,000,000Common Equity 90, 000, 000 Total Liabilities and Equity 180,000,000 New bonds will have acoupon rate of 10% and will sell at par. Common stock,currently selling at $ 40 a share canbe sold to net the company at$36 a share. Stockholders' required rate of return is 12%. (The next expected dividend is $1.60). Retained earnings are estimated to be $9 million.Thetax rate is 40%. a. To maintain the present capital structure, how much of the capitalbudget must Shipley finance by equity? b. How much of the new equity funds needed mustbe generated internally?Externally?c. Calculate the cost of each of the equity components. d.Calculate the weighted average cost of capital.
On January 1, 2009 the total assets of the Shipley Company were $ 180 million. During the
year, the company plans to raise and invest $ 90 million. The firm's present capital structure is
considered optimal.Assume that there is no short term debt. Long term debt 90,000,000
Common Equity 90, 000, 000 Total Liabilities and Equity 180,000,000 New bonds will have a
coupon rate of 10% and will sell at par. Common stock,currently selling at $ 40 a share can
be sold to net the company at$36 a share. Stockholders' required
The next expected dividend is $1.60).
tax rate is 40%. a. To maintain the present capital structure, how much of the capital
budget must Shipley finance by equity? b. How much of the new equity funds needed must
be generated internally?Externally?c. Calculate the cost of each of the equity components. d
.Calculate the weighted average cost of capital.
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