The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan's current capital structure calls for 35 percent debt, 25 percent preferred stock, and 40 percent common equity. Initially, common equity will be in the form of retained earnings (K) and then new common stock (K,). The costs of the various sources of financing are as follows: debt (after-tax), 6.2 percent; preferred stock, 8 percent; retained earnings, 11 percent; and new common stock, 12.2 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) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt % Preferred stock Common equity Weighted average cost of capital 0.00 % b. If the firm has $28 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").)
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- The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 35 percent debt, 25 percent preferred stock, and 40 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 (after-tax), 8.6 percent; preferred stock, 8 percent; retained earnings, 14 percent; and new common stock, 15.2 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.) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) b. If the firm has $16 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").) c. What will the marginal cost of…The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 40 percent debt, 10 percent preferred stock, and 50 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 (after-tax), 6.6 percent; preferred stock, 6 percent; retained earnings, 11 percent; and new common stock, 12.2 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.) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt % Preferred stock Common equity 5.50 Weighted average cost of capital % b. If the firm has $10 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of…The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 40 percent debt, 10 percent preferred stock, and 50 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 (after-tax), 6.6 percent; preferred stock, 6 percent; retained earnings, 11 percent; and new common stock, 12.2 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.) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal
- The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee's current capital structure calls for 50 percent debt, 25 percent preferred stock, and 25 percent common equity. Initially, common equity will be in the form of retained earnings (K) and then new common stock (K). The costs of the various sources of financing are as follows: debt (after-tax), 7.2 percent; preferred stock, 10.0 percent, retained earnings, 12.0 percent; and new common stock, 13.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, K.) Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Preferred stock Common equity Weighted average cost of capital Weighted Cost % Capital structure size (X) b. If the firm has $18.5 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note:…The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee's current capital structure calls for 45 percent debt, 25 percent preferred stock, and 30 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 (after-tax), 4.0 percent; preferred stock, 5.0 percent; retained earnings, 13.0 percent; and new common stock, 14.4 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.) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Debt Preferred stock Common equity Weighted average cost of capital Weighted Cost % Capital structure size (X) b. If the firm has $31.5 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter…The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current capital structure calls for 50 percent debt, 20 percent preferred stock, and 30 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 (after-tax), 6.0 percent; preferred stock, 8.0 percent; retained earnings, 9.0 percent; and new common stock, 10.2 percent. subparts B-Epart a was asked in another question b. If the firm has $21.0 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").) Capital structure size (X) million c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 30 percent of the capital structure, but will all be in the form of new…
- Ilumina Corp is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Percent financed with debt (wd) Percent financed with equity (wc) Debt-to-equity ratio (D/S) After-tax cost of debt (%) 0.25 0.75 0.25/0.75 = 0.33 6.9% 0.35 0.65 0.35/0.65 = 0.5385 7.1% 0.50 0.50 0.50/0.50 = 1.00 8.0% The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is 6%. Ilumina estimates that its beta with 10% debt is 1. The company’s tax rate, T, is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the firm’s cost of capital at this optimal capital structure? (Please show work)The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current capital structure calls for 50 percent debt, 20 percent preferred stock, and 30 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 (after-tax), 6.0 percent; preferred stock, 8.0 percent; retained earnings, 9.0 percent; and new common stock, 10.2 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.) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt % Preferred stock Common equity Weighted average cost of capital 0.00 %Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I) anda levered plan (Plan II). Under Plan I, the company would have 365,000 shares of stockoutstanding. Under Plan II, there would be 245,000 shares of stock outstanding and RM4.56million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.(i) Use MM Proposition I to find the price per share. (ii) What is the value of the firm under each of the two proposed plans?
- Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I) anda levered plan (Plan II). Under Plan I, the company would have 365,000 shares of stockoutstanding. Under Plan II, there would be 245,000 shares of stock outstanding and RM4.56million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.(i) Use MM Proposition I to find the price per share.The beta corporation asks you to determine its marginal cost of capital. Beta’s current capital structure consists of 45% debt, 15% preferred stock and 40% common equity. The separate marginal costs of the various components of the capital structure are as follows: debt, after-tax 5.0 percent; preferred stock, 9 percent; retained earnings, 12 percent; and new common stock, 13.5 percent. If beta has 15 million investible retained earnings, and Beta has an opportunity to invest in an attractive project that costs 60million, what is the marginal cost of capital of Beta Corporation? 9.88% 8.63% 9.00% 8.40%Aaron Athletics is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common equity. In order to estimate the cost of capital at various debt levels the company has constructed the following table: Percent financed with debt (wD) Percent financed with equity (ws) Before tax cost of debt 0.10 0.90 7.0% 0.20 0.80 7.2% 0.30 0.70 8.0% 0.40 0.60 8.8% 0.50 0.50 9.6% The company uses the CAPM to estimate its cost of equity, rS . The risk-free rate is 4% and the market risk premium is 5%. Aaron estimates that if it had no debt its beta would be 1.0. (It’s unlevered beta equals 1.0). The company’s tax rate is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the WACC at that capital structure? (Show your calculations at each debt level).