The difference between company financing its internal operations over external common equity and internal common equity.

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Answer 1

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Chapter 9, Problem 6RQ

a)

Summary Introduction

To determine: The difference between company financing its internal operations over external common equity and internal common equity.

b)

Summary Introduction

To determine: The reason why there is a cost related with the internal common equity.

c)

Summary Introduction

To determine: The two methods that might be used in calculating the cost of common equity.

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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 9, Problem 6RQ

a)

Summary Introduction

To determine: The difference between company financing its internal operations over external common equity and internal common equity.

b)

Summary Introduction

To determine: The reason why there is a cost related with the internal common equity.

c)

Summary Introduction

To determine: The two methods that might be used in calculating the cost of common equity.

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Answer 3

Question

Chapter 9, Problem 6RQ

a)

Summary Introduction

To determine: The difference between company financing its internal operations over external common equity and internal common equity.

b)

Summary Introduction

To determine: The reason why there is a cost related with the internal common equity.

c)

Summary Introduction

To determine: The two methods that might be used in calculating the cost of common equity.

Expert Solution & Answer

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Answer 4

Question

Chapter 9, Problem 6RQ

a)

Summary Introduction

To determine: The difference between company financing its internal operations over external common equity and internal common equity.

b)

Summary Introduction

To determine: The reason why there is a cost related with the internal common equity.

c)

Summary Introduction

To determine: The two methods that might be used in calculating the cost of common equity.

Expert Solution & Answer

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Answer 5

Chapter 9, Problem 6RQ

a)

Summary Introduction

To determine: The difference between company financing its internal operations over external common equity and internal common equity.

b)

Summary Introduction

To determine: The reason why there is a cost related with the internal common equity.

c)

Summary Introduction

To determine: The two methods that might be used in calculating the cost of common equity.

Answer 6

Chapter 9, Problem 6RQ

a)

Summary Introduction

To determine: The difference between company financing its internal operations over external common equity and internal common equity.

Answer 7

Chapter 9, Problem 6RQ

a)

Summary Introduction

To determine: The difference between company financing its internal operations over external common equity and internal common equity.

Answer 8

b)

Summary Introduction

To determine: The reason why there is a cost related with the internal common equity.

Answer 9

b)

Summary Introduction

To determine: The reason why there is a cost related with the internal common equity.

Answer 10

c)

Summary Introduction

To determine: The two methods that might be used in calculating the cost of common equity.

Answer 11

c)

Summary Introduction

To determine: The two methods that might be used in calculating the cost of common equity.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQ Ch. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQ Ch. 9 - Prob. 5RQ Ch. 9 - Prob. 6RQ Ch. 9 - Prob. 7RQ Ch. 9 - Prob. 1SP Ch. 9 - Prob. 2SP Ch. 9 - (Cost of equity) In the spring of 2018, the Brille...

The difference between company financing its internal operations over external common equity and internal common equity.

Solution Summary: The author explains the two widely held methods for calculating the cost of equity capital, namely the dividend-growth model and the capital asset pricing model.

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To determine: The difference between company financing its internal operations over external common equity and internal common equity.

To determine: The reason why there is a cost related with the internal common equity.

To determine: The two methods that might be used in calculating the cost of common equity.

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