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HW3 (10 points):Due by October 14th 1) J. Ross and Sons Inc. has a target capital structure that

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HW3 (10 points):Due by October 14th 1) J. Ross and Sons Inc. has a target capital structure that… 1 answer below » HW3 (10 points):Due by October 14th 1) J. Ross and Sons Inc. has a target capital structure that calls for 50 percent debt and 50 percent common equity. The companys only interest bearing debt is 10 year bond. The companys 10 year long-term bonds pay 8% semiannual coupon (that is, 4% of the principal will be paid every six months) and the bonds are currently sold at $1,200 and the par of the bond is $1,000. The firm can issue bonds only $10 million at this price. Beyond this amount, the firm can issue the bond at the same price, but the firm has to pay 9% semiannual coupon (that is, 4.5% of View complete question » HW3 (10 points):Due by October 14th 1) J. Ross and Sons Inc. has a target capital structure that calls for 50 percent debt and 50 percent common equity. The companys only interest bearing debt is 10 year bond. The companys 10 year long-term bonds pay 8% semiannual coupon (that is, 4% of the principal will be paid every six months) and the bonds are currently sold at $1,200 and the par of the bond is $1,000. The firm can issue bonds only $10 million at this price. Beyond this amount, the firm can issue the bond at the same price, but the firm has to pay 9% semiannual coupon (that is, 4.5% of the principal will be paid every six months). Ross expects to have $15 million retained earnings. Ross’ common stock currently sells for $30 per share, but if the firm issues new common stock the firm has to pay 10% flotation costs. The firm will pay a next dividend of $2(D1=$2.00) per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 6 percent per year. The firms tax rate is 30%. The company has a very lucrative new project and the project requires $35 million. What should be the WACC for this project? To answer the question, you must calculate break points of debt and retained earnings. (10 points) Document Preview: HW3 (10 points):Due by October 14th
J. Ross and Sons Inc. has a target capital structure that calls for 50 percent debt and 50 percent common equity. The company’s only interest bearing debt is 10 year bond. The company’s 10 year long-term bonds pay 8% semiannual coupon (that is, 4% of the principal will be paid every six months) and the bonds are currently sold at $1,200 and the par of the bond is $1,000. The firm can issue bonds only $10 million at this price. Beyond this amount, the firm can issue the bond at the same price, but the firm has to pay 9% semiannual coupon (that is, 4.5% of the principal will be paid every six months). Ross expects to have $15 million retained earnings. Ross’ common stock currently sells for $30 per share, but if the firm issues new common stock the firm has to pay 10% flotation costs. The firm will pay a next dividend of $2(D1=$2.00) per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 6 percent per year. The firm’s tax rate is 30%.
The company has a very lucrative new project and the project requires $35 million. What should be the WACC for this project? To answer the question, you must calculate break points of debt and retained earnings. (10 points) Attachments: Q-Attachment…..docx View less » Jul 30 2015 10:01 AM


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