Ph Co. has an 8% debt with a book value of 8 M and a common stock of 8.5 M with outstanding shares of 370,000. The expected level of EBIT after the expansion is 3.5 M. The income tax rate is 25%. The firm is considering a 12 M expansion program using one of the following: Plan 1 - Incur additional debt at 10% interest; Plan 2 - Sell preferred shares with an 11.5% dividend yield; and Plan 3 - Sell new common stock at 25 per share. How much is the EPS for Plan 1?
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- Ph Co. has an 8% debt with a book value of 8 M and a common stock of 8.5 M with outstanding shares of 370,000. The expected level of EBIT after the expansion is 3.5 M. The income tax rate is 25%. The firm is considering a 12 M expansion program using one of the following: Plan 1 - Incur additional debt at 10% interest; Plan 2 - Sell preferred shares with an 11.5% dividend yield; and Plan 3 - Sell new common stock at 25 per share. How much is the EPS for Plan 1?IRIS Corp. has determined its optimal capital structure as follows. Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the…Need answer
- A firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Debt: The firm can sell a 20-year, $1,000 par value, 9 percent bond for $980. A flotation cost of 2 percent of the face value would be required in addition to the discount of $20. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: The firm's common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.45. It is expected that to sell, a new common stock issue must be underpriced at $1 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm's marginal tax rate is 40 percent.…ABC Ltd. needs Rs 500 lacs for an expansion plan that is expected to yield 15% return on assets. Currently its return on asset is 12% and the firm is all equity funded. For expansion it has alternatives of funding the entire expenditure either through debt or equity. Following information is available: Nos. of shares already existing 20 lacs Price at which the shares can be issued (Rs) Rs 50 Existing interest Rs 30 lacs Interest rate on debt 10% Tax rate 40% Find out the new EPS with equity and debt financing. Also find at what level of earnings the firm is indifferent to mode of financing.Give true answer
- A) Donner, Inc. will finance a proposed investment by issuing new securities while maintaining its optimal capital structure of 60% debt and 40% equity. The firm can issue bonds at a price of $950.00 before $15 flotation costs. The 10 -year bonds will have an annual coupon rate of 8% and a face value of $1,000. The company can issue new equity at a before-tax cost of 16% and its marginal tax rate is 34%. Calculate WACC. B) GHJ Inc. is investing in a major capital budgeting project that will require the expenditure of $16 million. The money will be raised by issuing $2 million of bonds, $4 million of preferred stock, and $10 million of new common stock. The company estimates is after-tax cost of debt to be 7%, its cost of preferred stock to be 9%, the cost of retained earnings to be 14%, and the cost of new common stock to be 17%. What is the weighted average cost of capital for this project?sorensen systems inc. is expected to pay a $2.50 dividend at year end (d1=$2.50), the dividend is expected to grow at a a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. the before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC?Xavier Manufacturing Company has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Target Market - Source of Capital Proportions Long-term debt 35% Preferred stock 5% Common stock equity 60% Debt: The firm plans to issue a 20-year, $1,000 par value, 6%(percent) bond. A flotation cost of 3% (percent) of the face value would be required. Preferred Stock: The firm has determined it can issue preferred stock at $70 per share par value. The stock will pay an $8.00 annual dividend. The cost of issuing and selling the preferred stock will be $3 per share. Common Stock: The firm’s common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5.00. Its dividend payments have been growing at a constant rate for the last five years at a rate of 5%. In order to assure that the new stock issuance will sell,…
- Provide help with this questionGRK Co. is currently an all-equity firm with an expected return of 10%. The expected EBIT is $ 50,000 forever. Assume that the firm distributes all the net income to the equity holders. The firm is considering a leveraged recapitalization in which it would borrow $ 250,000 and repurchase existing shares. The firm's tax rate is 40%. The cost of debt is 7%. 1/ Calculate the value of the firm with leverage. 2/ Calculate the expected return of equity after recapitalization. 3/ Calculate the cost of capital of the firm after recapitalization.A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Source of Capital Target Market ProportionsLong Term Debt 25%Preferred Stock 15%Common Stock 60%Total Firm Value 100% Debt: The firm can sell a 10-year, RM1,000 par value, 6% bond for RM945.Preferred Stock: The firm has determined it can issue preferred stock at RM70 per share par value. The stock will pay a RM8 annual dividend.Common Stock: A firm's common stock is currently selling for RM19 per share.The dividend expected to be paid at the end of the coming year is RM1.85. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was RM1.50. Additionally, the firm's marginal tax rate is 35%.Determine the weighted average cost of capital for the firm.