Question: Green Manufacturing, Inc., plans to announce that it will issue $2.06 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 6 percent. Green is currently an all-equity firm worth $7.38 million with 460,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $1.56 million. This level of earnings is expected to remain constant in perpetuity. Green is subject to a corporate tax rate of 40 percent. What is the required return on Green's equity after the restructuring?

IRIS Corp. has determined its optimal capital structure as follows: (ATTACHED) 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…

Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis of this information you are asked to respond to the following three questions: COMPLETED1. Micro Advantage issued a $6,000,000 par value, 20-year bond a year ago at 98 (i.e., 98% of par value) with a stated rate of 9%. Today, the bond is selling at 105 (i.e., 105% of par value). If the firm’s tax bracket is 30%, what is the current after-tax cost of this debt? COMPLETED2. Micro Advantage has $5,600,000 preferred stock outstanding that it sold for $22 per share. The preferred stock has a per share par value of $25 and pays a $3 dividend per year. The current market price is $30 per share. The firm’s tax bracket is 30%. What is the after-tax cost of the preferred stock? REQUESTING ASSISTANCE ON BOLD PORTION3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 76,000 shares of common stock outstanding that has a par value of $10 per share and…

Jenkins Resources Inc. has the following capital structure: Financing Source Proportion of Capital Structure Debentures (8% coupon, $1,000 par value,    13 year maturity)   29 %   Preferred stock ($3 dividend, $35 par value)   5     Common equity   66         Total   100 %               Jekins expects to raise future capital in the proportions currently indicated on the balance sheet. The current market price for Jenkins debentures is $1,177. If new debentures were sold, the issuance cost would be $43 per bond. The current market price for the preferred stock is $19. Issuance costs on new preferred stock would be $3 per share for a $35 par value issue. Issuance costs on new equity would be $2.5 per share. The current market price for Jenkins common stock is $40. The stock pays a current (D0) dividend of $5. This dividend is expected to grow at an annual rate of 8 percent. What is the weighted (marginal) cost of capital for Jenkins Resources, assuming new capital is…

(a) Calculate the theoretical ex-rights price per share of Squid Inc. following the rights issue

Evaluate whether using the cash raised by the rights issue to buy back bonds is likely to be financially acceptable to the shareholders of Squid Inc.

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Target Inc. has a $100 million debt and $500 million equity and is being bought out by a private equity fund in an LBO transaction. The PE fund will pay $700 million to buy out the target firm's existing equity, funded by 550 million of new debt and 150 million of equity investment. As a bondholder of Target Inc., which the following is most likely to happen to the value of your bond? O Increase Decrease Unchanged. Cannot be determined.

Divided Walls Construction (DWC) has determined that the yield to maturity (YTM) on new bonds is 5 percent, its cost of retained earnings is 8 percent, and its cost of new common stock is 11 percent. If DWC’s capital structure consists of 40% debt and 60$ common equity, what is its weighted average cost of capital (WACC) if it (a) does not have to issue new stock to raise additional funds and (b) must issue new stock to raise additional funds? DWC’s marginal tax rate is 35 percent.