PQR Corporation is considering the following alternative plans of financing for raising$4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000.The tax rate is 35%.All bonds or stocks are issued at their par values.Interest is payable at the end of each year. Required:Which plan should company choose & why (i.e. Explain the rationale behind selecting the plan)? Provide all the detailed calculations. Plan 1Plan 2Plan 34,000,000 2,500,000 1,000,0002,000,0001,500,000 1,000,000Issue Equity capital @$ 10Issue 10% bondsIssue Preference stock 10%, @$45Total amount to be raised4,000,000 4,000,000 4,000,000

QR Corporation is considering the following alternative plans of financing for raising $4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000. The tax rate is 35%. All bonds or stocks are issued at their par values. Interest is payable at the end of each year.

QR Corporation is considering the following alternative plans of financing for raising $4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000. The tax rate is 35%. All bonds or stocks are issued at their par values. Interest is payable at the end of each year.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 14PROB

See similar textbooks

Similar questions

Which of the following capital structures is optimal? Debt Equity EPS Stock Price 40% 60% $2.95 $26.50 50% 50% $3.05 $28.90 60% 40% $3.18 $31.20 70% 30% $3.31 $30.00 80% 20% $3.42 $30.40 Question 1 options: 40% debt 50% debt 60% debt 70% debt 80% debt
1 Free Cash Flow Valuation Model 2 3 INPUTS (In millions) 4 5 6 Free cash flow 7 Marketable securities 8 Notes payable 9 Long-term bonds 10 Preferred stock 11 WACC 12 Number of shares of stock 13 B Current 0 $40 $120 $360 $60 13.00% 25 1 D E F Year Projected 2 3 4 -$15.0 $15.0 $50.0 $54.0 14 a. Calculating the estimated horizon value (i.e., the value of operations at the end of the forecast 15 period immediately after the Year-4 free cash flow) 16 Constant long-term growth rate 17 Horizon value at Year 4 18 million Formulas #N/A #N/A 19 b. Calculating the present value of the horizon value, the present value of the free cash flows, 20 and the estimated Year-0 value of operations 21 Present value of HV 22 Present value of FCF 23 Value of operations 24 million #N/A million million #N/A #N/A 25 c. Calculating the estimated Year-0 price per share of common equity 26 Value of operations 27 + Value of marketable securities 28 Total intrinsic value 29 Value of total debt 30 - Value of…
Question 7 The Amelia Knight investment fund has a total capital of R120 000 invested in three shares: SharesReturnInvestedTechnological Sector25%R60 000Education Sector13%R30 000Mining Sector20%R30 000 The current risk-free rate is 5,5%. Market returns have the following estimated probability distribution for the next period: ProbabilityMarket return0,3–10%0,1 14%0,2 15%0,4 18% What is the beta coefficient of the investment fund? 1. 0,52 2. 0,80 3. 1,82 4. 4,92
Accounting question
Finance
Problem 20-03 Fill in the table using the following information.Assets required for operation: $11,000Firm A uses only equity financingFirm B uses 30% debt with an 8% interest rate and 70% equityFirm C uses 50% debt with a 10% interest rate and 50% equityFirm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financingEarnings before interest and taxes: $1,100If your answer is zero, enter "0". Round your answers for monetary values to the nearest cent. Round your answers for percentage values to one decimal place. A B C D Debt $ $ $ $ Preferred stock $ $ $ $ Common stock $ $ $ $ Earnings before interest and taxes $1,100.00 $1,100.00 $1,100.00 $1,100.00 Interest expense $ $ $ $ Earnings before taxes $ $ $ $ Taxes (40% of earnings) $ $ $ $ Preferred stock dividends $ $ $ $ Income available to common stockholders $…
Provide this question solution general finance
aj.9
QUESTION 8 Given Investment E(R) σ Stock A $15,000 10% 10% Stock B $5,000 5% 25% Total $20,000 and Corr(AB)=PAB = -0.25. Find the Portfolio Standard Deviation 8.1779% 5.876 8.6779% 6.557% 8.4779%
SECTION BI Question 2 Your analysis of Exxa Capital Berhad's indicated that the beta is 1.6. The risk-free rate instrument return is 3.85% and the current market return is 8.15%. The following is the capital structure of Exxa Capital Berhad: 4 Capital Bonds Details RM900 per unit and total outstanding bond issue is 3,000 units Total valuation is RM2.5 million Total value of outstanding common stock is RM12 million Preferred stocks Common stocks Table 1: Exxa Capital's Capital Structure The company's tax rate is 24%. Cost of Capital 6.89% 9.5% 6.14%
10:42 p < MGMT2023 Individ... l 75% о Question 4: 7 marks 100% You have $1,000,000 to invest in a portfolio which will have the same risk as the market portfolio. Keeping this in mind, complete the following table: M Table 3 Asset Investment Beta Stock A $200,000 0.8 Stock B $100,000 Stock C 1.3 1.5 Risk free asset Total investment $1,000,000 Hint: Start by computing the weight for stock C ☑ END OF ASSIGNMENT -Τ т T 17▾ Paste Х 10 6 7 89 0 1 2 3 45 QWE RTYUIOP ASDFGHJKL D Z X XCVBNM !#1 English (US) ☑ ||| О
Alternative Financing Plans Vatican Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 10% bonds (at face value) $6,000,000 $3,750,000 Issue preferred $2.50 stock, $25 par 4,500,000 Issue common stock, $20 par 6,000,000 3,750,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is $3,000,000. Enter answers in dollars and cents, rounding to the nearest whole cent. Plan 1 $ X Earnings per share on common stock Plan 2 X Earnings per share on common stock