The Ewing Distribution Company is planning a $200 million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed, in part with debt issued with a coupon interest rate of 15 percent. The bonds have a 15-year maturity and a $1,000 face value, and they will be sold to net Ewing 1977 after issue costs. Ewing's marginal tax rate is 40 percent. Preferred stock will cost Ewing 16 percent after taxes. Ewing's common stock pays a dividend of $6 per share. The current market price per share is $15, and new shares can be sold to net $14 per share. Ewing's dividends are expected to increase at an annual rate of 5 percent for the foreseeable futbre. Ewing expects to have $40 million of retained earnings available to finance the expansion. Ewing's target capital structure is as follows: Debt 30% 10 Preferred stock Common equity 60 answer to one Calculate the weighted cost of capital that is appropriate to use in evaluating this expansion program. Use Table 11 and Table IV to answer the questions. Round your anse deomal place.
The Ewing Distribution Company is planning a $200 million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed, in part with debt issued with a coupon interest rate of 15 percent. The bonds have a 15-year maturity and a $1,000 face value, and they will be sold to net Ewing 1977 after issue costs. Ewing's marginal tax rate is 40 percent. Preferred stock will cost Ewing 16 percent after taxes. Ewing's common stock pays a dividend of $6 per share. The current market price per share is $15, and new shares can be sold to net $14 per share. Ewing's dividends are expected to increase at an annual rate of 5 percent for the foreseeable futbre. Ewing expects to have $40 million of retained earnings available to finance the expansion. Ewing's target capital structure is as follows: Debt 30% 10 Preferred stock Common equity 60 answer to one Calculate the weighted cost of capital that is appropriate to use in evaluating this expansion program. Use Table 11 and Table IV to answer the questions. Round your anse deomal place.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Aa 141.
Transcribed Image Text:The Ewing Distribution Company is planning a $200 million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed, in part
with debt issued with a coupon interest rate of 15 percent. The bonds have a 15-year maturity and a $1,000 face value, and they will be sold to net Ewing $977 after issue costs.
Ewing's marginal tax rate is 40 percent.
Preferred stock will cost Ewing 16 percent after taxes. Ewing's common stock pays a dividend of $6 per share. The current market price per share is $15, and new shares can be sold
to net $14 per share. Ewing's dividends are expected to increase at an annual rate of 5 percent for the foreseeable futbre. Ewing expects to have $40 milion of retained earnings
available to finance the expansion.
Ewing's target capital structure is as follows:
Debt
30%
Preferred stock 10
Common equity 60
Calculate the weighted cost of capital that is appropriate to use in evaluating this expansion program, Use Table 11 and Tabla IV to answer the questions. Round your answer to one
deomal place
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