Thenumber of months before which the credit card would be paid off. Nominal rate of interest: The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

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 5, Problem 37P

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

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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…

7. Berkeley Farms wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans: Cost (aftertax) Weights Plan A Debt .................................. 4.0% 30% Preferred stock .................. 8.0 15 Common equity ................. 12.0 55 Plan B Debt .................................. 4.5% 40% Preferred stock .................. 8.5 15 Common equity ................. 13.0 45 Plan C Debt .................................. 5.0% 45% Preferred stock .................. 18.7 15 Common equity ................. 12.8 40 Plan D Debt .................................. 12.0% 50% Preferred stock .................. 19.2 15 Common equity ................. 14.5 35 a. Which of the four plans has the lowest weighted average cost of capital? Use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand.

Need use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand. Delta Corporation has the following capital structure: Cost Weighted (after-tax) Weights Cost Debt 8.1% 35% 2.84% Preferred stock (Kp) 9.6 5 .48 Common equity (Ke) (retained earnings) 10.1 60 6.06 Weighted average cost of capital (Ka) 9.38% a. If the firm has $18…

Answer 2

Question

Chapter 5, Problem 37P

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

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Answer 3

Question

Chapter 5, Problem 37P

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Expert Solution & Answer

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Answer 4

Question

Chapter 5, Problem 37P

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Expert Solution & Answer

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Answer 5

Chapter 5, Problem 37P

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 6

Chapter 5, Problem 37P

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 7

Chapter 5, Problem 37P

a.

Summary Introduction

To determine: Thenumber of months before which the credit card would be paid off.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 8

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 9

b.

Summary Introduction

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 10

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 11

c.

Summary Introduction

To determine: The amount more in the total payments under $10-a-month plan than a $35-a-month plan.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 12

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Answer 23

Ch. 5 - Prob. 1Q Ch. 5 - Explain whether the following statement is true or...Ch. 5 - If a firms earnings per share grew from 1 to 2...Ch. 5 - Would you rather have a savings account that pays...Ch. 5 - Prob. 5Q Ch. 5 - Prob. 6Q Ch. 5 - Banks and other lenders are required to disclose a...Ch. 5 - Prob. 8Q Ch. 5 - Prob. 1P Ch. 5 - PRESENT VALUE What is the present value of a...

Thenumber of months before which the credit card would be paid off. Nominal rate of interest: The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Solution Summary: The author explains the nominal rate of interest, which is charged on the credit cards, and the effective annual rate to compare the rates of two different banks.

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Chapter 5 Solutions

Thenumber of months before which the credit card would be paid off. Nominal rate of interest: The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Solution Summary: The author explains the nominal rate of interest, which is charged on the credit cards, and the effective annual rate to compare the rates of two different banks.

To determine: The months before the person pays off the debt. Nominal rate of interest: The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Chapter 5 Solutions

To determine: The months before the person pays off the debt.

Nominal rate of interest:

The nominal rate of interest is the annual rate, which is charged on the credit cards. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.