Current target capital structure is 15% debt, 2% preferred stock and 83% common equity. If changed...
Current target capital structure is 15% debt, 2% preferred stock and 83% common equity. If changed to 50% equity and 50% debt (by issuing additional debt, and using proceeds to buy back 33% equity and 2% preferred stock, will the cost of debt change? Or will it remain the same as before this change?
Homework Answers
The cost of debt will change as the risk of the firm increases with increased debt. Not only the cost of debt but also the cost of equity will go up.
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Current target capital structure is 15% debt, 2% preferred stock
and 83% common equity. If changed...
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Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 40%, how much...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
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Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Tumbull can raise all...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. If its current tax rate is 40%, how much...
Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax...
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You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity
You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC? (Points : 5) 8.98% 9.26% 9.54% 9.83% 10.12%
Global Technology's capital structure is as follows: Debt Preferred stock Common equity 35% 15 50 The...
Global Technology's capital structure is as follows: Debt Preferred stock Common equity 35% 15 50 The aftertax cost of debt is 6.00 percent; the cost of preferred stock is 10.00 percent; and the cost of common equity (in the form of retained earnings) is 13.00 percent. Calculate the Global Technology's weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)...
Global Technology's capital structure is as follows Debt Preferred stock Common equity 15% 50 35 The...
Global Technology's capital structure is as follows Debt Preferred stock Common equity 15% 50 35 The aftertax cost of debt is 8.00 percent; the cost of preferred stock is 12.00 percent; and the cost of common equity (in the form of retained eamings) is 15.00 percent. Calculate the Global Technology's weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Tumbull can raise all...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. If its current tax rate is 40%, how much...
Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2% If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. If its current tax rate is 25%, how much...
Global Technology's capital structure is as follows: Debt Preferred stock Common equity 35% 15 50 The aftertax cost of debt is 6.00 percent; the cost of preferred stock is 10.00 percent; and the cost of common equity (in the form of retained earnings) is 13.00 percent. Calculate the Global Technology's weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)...
Global Technology's capital structure is as follows Debt Preferred stock Common equity 15% 50 35 The aftertax cost of debt is 8.00 percent; the cost of preferred stock is 12.00 percent; and the cost of common equity (in the form of retained eamings) is 15.00 percent. Calculate the Global Technology's weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)...
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