year Galhas, Manag plant and equipment during the coming year by P12 million. The company plans to nce 40% of the expansion with debt and the remaining 60% with equity capital. Bond ncing will be at 9% coupon rate and will be sold at par value. Common stock is currently ing at P50 per share, and flotation costs for new common will amount to P5 per share. expected dividend next year for Gathas is P2.50. Furthermore, dividends are expected row at 6% rate far into the future. Corporate tax is 25%. Internal funding available from itions to retained earnings is P4 million. a. What amount of new common stock must be sold if the existing capital structure is be maintained? b. Calculate the weighted average cost of capital at an investment level of P12 million
year Galhas, Manag plant and equipment during the coming year by P12 million. The company plans to nce 40% of the expansion with debt and the remaining 60% with equity capital. Bond ncing will be at 9% coupon rate and will be sold at par value. Common stock is currently ing at P50 per share, and flotation costs for new common will amount to P5 per share. expected dividend next year for Gathas is P2.50. Furthermore, dividends are expected row at 6% rate far into the future. Corporate tax is 25%. Internal funding available from itions to retained earnings is P4 million. a. What amount of new common stock must be sold if the existing capital structure is be maintained? b. Calculate the weighted average cost of capital at an investment level of P12 million
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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Transcribed Image Text:11. Last year Gathas, Inc. had P50 million in total assets. Management desires to increase
its plant and equipment during the coming year by P12 million. The company plans to
finance 40% of the expansion with debt and the remaining 60% with equity capital. Bond
financing will be at 9% coupon rate and will be sold at par value. Common stock is currently
selling at P50 per share, and flotation costs for new common will amount to P5 per share.
The expected dividend next year for Gathas is P2.50. Furthermore, dividends are expected
to grow at 6% rate far into the future. Corporate tax is 25%. Internal funding available from
additions to retained earnings is P4 million.
a. What amount of new common stock must be sold if the existing capital structure is to
be maintained?
b. Calculate the weighted average cost of capital at an investment level of P12 million,
assuming amount of retained earnings will not be used
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