Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

The Ewing Distribution Company is planning a $100 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 10-year maturity and a $1,000 face value, and they will be sold to net Ewing $990 after issue costs. Ewing's marginal tax rate is 40 percent. Preferred stock will cost Ewing 14 percent after taxes. Ewing's common stock pays a dividend of $2 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 future. Ewing expects to have $20 million of retained earnings available to finance the expansion.

Ewing's target capital structure is as follows:

Debt 20%

Preferred stock 5

Common equity 75

find out the weighted cost of capital that is appropriate to use in evaluating this expansion program.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M944043

Have any Question? 


Related Questions in Basic Finance

1corporate share repurchase programs are often touted as a

1. Corporate share repurchase programs are often touted as a benefit for shareholders. But Robert Gabele, director of insider research for First Call/ Thomson Financial, noted that many of these programs are undertaken s ...

Why would an mnc consider examining only its lsquonet cash

Why would an MNC consider examining only its ‘net' cash flows in each currency when assessing its transaction exposure? Are currency correlations perfectly stable over time? What does your answer imply about using past d ...

1 disadvantage of high liquidity what is a disadvantage of

1. Disadvantage of High Liquidity. What is a disadvantage of maintaining a very high level of liquidity? 2. Economic Impact on Liquidity Needs. Assume that your monthly expenses will not change over the next three years, ...

How would a relatively high home inflation rate affect the

How would a relatively high home inflation rate affect the home country's current account, all other thing being equal? How would you expect a weakening home currency to affect the home country's current account, all oth ...

For the correlational study described in problem 2 describe

For the correlational study described in Problem 2, describe how a third variable, such as family income or parents' educational level, might explain the relationship between academic performance and breakfast quality. E ...

If pawn shops charge high interest rates on loans why do

If pawn shops charge high interest rates on loans, why do people borrow money from them? Suppose Congress passes a law that puts a ceiling of 10% per year on the interest rate that pawn shops can charge on loans. Would t ...

A national survey of 40000 adults in the us in 1992 found

A national survey of 40,000 adults in the US in 1992 found that 26% of adults were current smokers. A similar survey of 37,000 adults in the US in 1966 found that 43% of adults were current smokers. Construct a 95% confi ...

1 deriving from the conclusion of proposition i what is the

1. Deriving from the conclusion of Proposition I, what is the crux of M&M Proposition II? What is the natural relationship between the required returns on debt and on equity that results from Proposition II? 2. In what w ...

1 suppose that after reading about a recent murder in your

1. Suppose that, after reading about a recent murder in your town, you want to learn more about what causes people to kill. You go to the library and check out a book written by an expert in the field. Explain which meth ...

Stock pricing stock valuation bond pricesbullgo to

STOCK PRICING / STOCK VALUATION / BOND PRICES • Go to www.cnbc.com and explore the video tab by using several different key terms such as stock pricing, stock valuation, and bond prices. • Watch at least two videos you f ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro