The target capital structure for Jowers Manufactoring is 47% common stock, 10% prefered stock, and 43% debt. If the cost of common equity for the firm is 19.5% the cost of the prefered stock is 11.3%, and the beforetax cost of debt is 10.2%, what is Jowers Cost of Capital? The firms tax rate is 34%.
Jowers WACC is what percent? (round three decimal places.)
(weighted average cost of capital) As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evalutating the purchase of new packaging equipment for the plant. Under the assumption that the firms present capital structure reflects the apporpriate mix of capital sources for the firm, you have determined the market value of the firms capital structure as follows.
Sources of Capital Market Value
Bonds $4100000
Prefered Stock $1700000
Common Stock $5900000
To finance the purchase, Ranch Manufacturing will sell a 10-year bonds paying 606% per year at the market price of $1039. Prefered stock paying $2.02 dividend can be sold for $24.85. Common Stock for Ranch Manufacturing is currently selling for $54.16 per share and the first paid a $3.08 divident last year. Dividends are expected to continue growing at a rate of 5.4% per year in the indefinite future. If the firms tax rate is 30%, what discount rate should you use to evalute the equipment purchase?
Ranch Manufacturing WACC is what %? Round to three decimal places.
Abe Forrester and three of his friends from college have interested a group of venture capitalists in the backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston, and San Antonio. To finance the new venture two plans have been proposed.
Plan A is an all-common-equity structure in which $2.4 million dollars would be raised by selling 82000 shares of common stock.
Plan B would invoice issuing $1.4 million dollars in long term bonds with an effective interest rate of 22.9% plus $1.0 million would be raised by selling 41,000 shares of common stock. The debt funds Abe and his partners plan to use a 40% tax rate in their analysis, and they have hired you on a consulting basis to do the following:
a. Find the EBIT indifference level associated with the two financing plans.(round to the nearest dollar)
b. Prepare a pro forma statement for the EBIT level solved for in Part a. that shows that EPS will be the same regardless whether Plan A or B is chosen
(EBIT-EPS analysis) Three recent graduates of the computer science program at the University of Tennessee are forming a company that will write and distribute new application software for the iPhone. Initially, the corporation will operate in the southern region of Tennessee, Georgia, North Carolina, and South Carolina. A small group of private investors in the Atlanta Georgia area is interested in financing the startup company and two financing plans have been put forth for consideration.
The first(plan a) is and all-common-equity capital structure $2.3 million dollars would be raided by selling common stock at $20 per common share.
Plan B would involve the use of financial leverage. 1.2 million dollars would be raised by selling bonds with an effective interest rate of 11.3%(per annum), and the remaining $1.1 million would be raised by selling common stock at the $20 price per share. The use of financial leverage is considered to ne a permanent part of the firms capitalization, so no fixed matuity date is needed for the analysis. A 34% tax rate is deemed appropriate for the analysis.
a. Find the EBIT difference level associated with tithe two financing plans.(Round to the nearest dollar)
b. A detailed financial analysis of the firms prospects suggest that the long-term EBIT will be above $310,000 annually. Taking this into consideration, which plan will generate the higher EPS?