# Finance-AW-Q45

## Finance-AW-Q45 Online Services

The corporate treasurer of Gonic Manufacturing Company expects the company to grow at 4% in the future. She notes that debt will have an interest rate of 4% interest and the corporate tax rate is 35%. She believes that debt will be a cheaper option to finance the growth. The current market price per share of its common stock is \$19, and the expected dividend in one year is \$0.75 per share. Calculate the cost of the company’s retained earnings and check if the treasurer’s assumption is correct.

The risk-free rate on 30 year U.S. Treasury bonds is 2.75% and the expected rate of return on the overall stock market is 7%. The BOW company has a beta of 1.4. What is the cost of equity?

Les argues that the 10 year note is a better risk free rate at 2%. He also argues that the stock market is too high and the expected return is really only 5%. Assume that he is correct. The company has a beta of 1.4. What is the cost of equity?

 A company, East  Berwick Enterprises, has a capital structure as follows: Total Capital \$1,000,000 Debt \$400,000 Preferred Stock \$100,000 Common Equity \$500,000

What would be the minimum expected return from a new capital investment project to satisfy the suppliers of the capital? Assume the applicable tax rate is 40%, interest on debt is 5%, flotation cost per share of preferred stock is \$0.75, and flotation cost per share of common stock is \$4. The preferred and common stocks are selling in the market for \$24 and \$130 a share respectively, and they are expected to pay a dividend of \$1.50 and \$4.50, respectively, in one year. The company’s dividends are expected to grow at 5% per year. The firm would like to maintain the existing capital structure to finance the new project.

You can read more about our case study assignment help services here.

## How it Works

#### How It works ?

Step 1:- Click on Submit your Assignment here or shown in left side corner of every page and fill the quotation form with all the details. In the comment section, please mention Case Id mentioned in end of every Q&A Page. You can also send us your details through our email id support@assignmentconsultancy.com with Case Id in the email body. Case Id is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.

Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id assignmentconsultancy.help@gmail.com and support@assignmentconcultancy.com must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.

Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.

Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.

Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.

## Case Approach

#### Scientific Methodology

We use best scientific approach to solve case study as recommended and designed by best professors and experts in the World. The approach followed by our experts are given below:

Defining Problem

The first step in solving any case study analysis is to define its problem carefully. In order to do this step, our experts read the case two three times so as to define problem carefully and accurately. This step acts as a base and help in building the structure in next steps.

Structure Definition

The second step is to define structure to solve the case. Different cases has different requirements and so as the structure. Our experts understand this and follow student;s university guidelines to come out with best structure so that student will receive best mark for the same.

Research and Analysis

This is the most important step which actually defines the strength of any case analysis. In order to provide best case analysis, our experts not only refer case materials but also outside materials if required to come out with best analysis for the case.

Conclusion & Recommendations

A weak conclusion or recommendations spoil the entire case analysis. Our expert know this and always provide good chunks of volume for this part so that instructors will see the effort put by students in arriving at solution so as to provide best mark.

## Related Services

1. If you borrow money to buy a car at 6% what is your cost of debt?

6%

2. If you borrow money to buy a home at 4%, what is your cost of debt?
Assume that you are single and your taxable income is \$42,000 ATkd = kd x (1- Tax Rate)
That mean your tax rate is 25%
Interest T 1-T
Cost 25% 75%
4%
Cost of debt after tax 3.00%

3. If your company has common equity with a stock price of \$75 and an expected dividend ks = D1 / P0 + g
of \$.75, what is the cost of equity if the growth is 7%?
D1 P0 g
\$0.75 \$75.00 7%

ks 8.00%

4. Calculate the Cost of Common Equity if the Beta is .8, the risk free rate is 2% and ks = kRF + (kM – kRF) β
the expected return on the market is 8%.

Beta kRF kM kRF Market Premium
0.8 2% 8% 2% 6%

6.80%

5. If your company has common equity with a stock price of \$75 and an expected ks = D1 / (P0 – f) + g
dividend of \$.75, what is the cost of equity if the growth is 7%?
Assume that floatation cost is \$1.50
D1 P0 g f
\$0.75 \$75.00 7% \$1.50

K 1.02% 7% 8.02%

6. What is the cost of a preferred stock that sells at \$50 per share kp = D / P
and has a dividend of \$2.50?
D P
\$2.50 \$50.00
5.00%

7. What is the cost of a preferred stock that sells at \$50 per share kp = D / (P – f)
and has a dividend of \$2.50 and a floatation cost of \$.50?
D P f
\$2.50 \$50.00 \$0.50
5.05%

8. What are the weights for the following capital structure?

Debt \$30,000 30%
Preferred \$5,000 5%
Common \$65,000 65%
Total \$100,000 100%

9. What is the WACC for the company above for new common and
and new Preferred stock?
Debt 3.00% 30% 0.900%
Preferred 5.05% 5% 0.253%
Common 8.02% 65% 5.213%
6.366%

10. What discount rate should you use for PV, NPV and FV work?
6.366%

11. UAL is considering buying Peoples Express Airlines for \$450 million
UAL expects to earn \$50 million per month on the new company
Set up a cash flow time line Month Cash Flow Cumulative
What is the payback? 0 -\$450 -\$450
1 \$50 -\$400
2 \$50 -\$350
3 \$50 -\$300
4 \$50 -\$250
5 \$50 -\$200
6 \$50 -\$150
7 \$50 -\$100
8 \$50 -\$50
9 \$50 \$0 payback in month

9

12. If Exxon Mobil stock sells at \$90 D0 = \$3.00
and just paid a dividend of \$3.00
What is the dividend yield?
\$3.00 \$90 3.33%

13. If Exxon Mobil has an expected growth rate of 10%
What will be the expected dividend? D1 = ????
g 1+g
10% 110% \$3.30

14. In 1985 Michigan Bell Telephone Company
had a bond that paid 15% Interest
How Much interest would be paid each year?
If the bond would pay principal of \$1,000 in 1995
Rate Principal
15% \$1,000 \$150

15. If the bond above would pay face value of
\$1000 in 1985, and it sold for \$1200, what was the
yield to maturity?

NPER PMT PV FV Rate
10 \$150 (\$1,200) \$1,000 11.53%

16. On October 4, 2015, your purchased a 10 year
Treasury Bond that pays 2% interest per year
You Paid \$1,000 and expected to get \$1,000
in October 2125.
If the current interest rate is 2.2%
What should the bond sell for today?
PMT NPER PV Rate Future Value
\$20.00 10 (\$982.22) 2.20% \$1,000

Product Code- Finance -AW-Q45