Whether the items are non-current or current assets. Introduction: Non-Current Assets Non-current assets are ones that cannot be converted into cash within the current financial year and take time for their realization. Non-Current Liabilities They are ones that are not obligated to be paid during the current financial year. Current Assets They are ones that can be liquidated or converted into cash easily within the current accounting period. Current Liabilities They are ones that are obligated to be paid during the current financial year.

Question

Moose Enterprises finds it is necessary to determine its marginal cost of capital. Moose’s current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.6 percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, 11.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) b. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 20 percent of the capital structure, but will all be in the form of new common stock, Kn.) d. The 9.6 percent cost of debt referred to earlier…

Answer 1

Question

Chapter 2, Problem 13P

Summary Introduction

To Explain: Whether the items are non-current or current assets.

Introduction:

Non-Current Assets

Non-current assets are ones that cannot be converted into cash within the current financial year and take time for their realization.

Non-Current Liabilities

They are ones that are not obligated to be paid during the current financial year.

Current Assets

They are ones that can be liquidated or converted into cash easily within the current accounting period.

Current Liabilities

They are ones that are obligated to be paid during the current financial year.

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