You are given the following information about a company
You are given the following information about a company. Their tax
rate is 34%. The firm is in need of $5 million dollars in external funds. Your bond advisor suggests that new bond issues can be lower than the current yield to maturity by 2.0% . You are not sure he is correct. Should you issue the new debt to raise money? Here is the existing capital structure: Debt: 5,000 eight percent (8%) coupon outstanding. The par value is $1000 and the mature in ten years. They are currently selling for $1250 and make semiannual payments. Equity: 50,000 shares outstanding. The common stock is currently selling for $72 per share. The beta for the company is 1.15. Preferred Stock: 10,000 shares of 2% preferred stock with a par value of $100, and is currently selling for $65 per share. Market Information: The risk of the market is 6% and the risk-free rate is 2%. The industry debt-equity ratio is 33%. The flotation rate for new debt is 3% and for new equity it is 5%. What is the existing weight average cost of capital? What is the new cost of capital if 5 million in new bonds were added? What if they finance the 5 million with all equity? What would the capital structure and WACC look like? What if they add 5 million in financing split among debt and equity in proportions equal to the current capital structure. What is the WACC? I really struggling most of my calculations to answer the questions. I keep getting different answers. Any support, explanations and help with formulations and calculations on this problem would be appreciated. Thanks..Suprina
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"
