Ask Question, Ask an Expert


Ask Basic Finance Expert

1) LCI’s net income expected this year is= $17,142.86; its established dividend payout ratio is= 30%; its tax rate is= 40%; and investors expect earnings and dividends to grow at the constant rate of= 9% in = future. LCI paid dividend of $3.60 per share last year (D0), and it’s stock presently sells at the price of $60 per share. Treasury bonds yield 11%; the average stock has 14% expected rate of return; and LCI’s beta is 1.51. These terms would apply to new security offerings:

Common: New common stock would have flotation cost of 10%.
Preferred: new preferred would be sold to public at the price of= $100 per share, with dividend of= $11. Flotation costs of= $5 per share would be incurred.
Debt: Debt could be sold at the interest rate of= 12%

a) Determine component costs of debt, favoured stock, retained earnings, and new common stock.

b) How much new capital can be increased before LCI should sell new equity? (In other words, find retained earnings break point.)

c) Compute WACC when LCI meets its equity requirement with retained earnings? With new common stock?

b) Construct a graph illustrating LCI’s MCC schedule.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915309

Have any Question? 

Related Questions in Basic Finance

Impact of lehman brothers failure explain how the

Impact of Lehman Brothers Failure : Explain how the bankruptcy of Lehman Brothers (a large securities firm) reduced the liquidity of the commercial paper market.

1 assume that a public corporation has 10000000 shares

1. Assume that a public corporation has 10,000,000 shares outstanding. First, you are to create the necessary Balance Sheets and Income Statements and then calculate the annual Cash Flow from Assets (aka: CFFA or Free Ca ...

Assignment cash managementsolve the following problem

Assignment: Cash Management Solve the following problem. Norma's Cat Food of Shell Knob ships cat food throughout the country. Norma has determined that through the establishment of local collection centers around the co ...

You are put in charge of managing your companys working

You are put in charge of managing your company's working capital. Your company has $1,000, 000 in extra cash on hand and decides to put it in a savings account paying 7% interest compounded annually. How much will you ha ...

Mike is taking 2 classes this summer he is taking stat and

Mike is taking 2 classes this summer. He is taking Stat and History. He knows that he will earn either pass or fail each class. The results in each class are independent of one another. He also knows that he has a 10% ch ...

Draw a graph of money demand and money supply with the

Draw a graph of money demand and money supply with the nominal interest rate on the vertical axis and money balances on the horizontal axis. Assume the central bank is following a money growth rule where it sets the grow ...

1 a distribution has a mean of 7 and a standard deviation

1) A distribution has a mean of 7 and a standard deviation of 4 what is the z score of a raw score of 0. Round to the second decimal place. 2) A distribution has a mean of 1 and standard deviation of 4. What is the raw s ...

Recreational supplies co has net sales of 12430000 an roe

Recreational Supplies Co. has net sales of $12,430,000, an ROE of 17.00 percent, and a total asset turnover of 2.44 times. If the firm has a debt-to-equity ratio of 1.25, what is the company's net income? (round intermed ...

Davenport corporations last dividend was 700 and the

Davenport Corporation's last dividend was $7.00 and the directors expect to maintain the historic 3 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase ...

What is a supply shockwhat is the appropriate policy

What is a supply shock? What is the appropriate policy response to a negative supply shock? What determines whether policy makers should act or do nothing in the face of adverse shocks to either aggregate demand or aggre ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate