The director for s corp. manufacturers of playground equipment, is considering a plan to expand production facilities in order to meet an increase in demand. he estimates that this expansion will produce a rate of return of 11%. the firm’s target capital structure calls for a debt/equity ratio of .8 . s corp has a bond issue outstanding for that will mature in 25 years and has a 7% annual coupon rate. the bonds are currently selling for $804. the firm has maintained a constant growth rate of 6%. s corp’s next expected dividend is $2(d1) and it current stock price is $40. its tax rate is 21%.
a. should it undertake the expansion?
b. calculate the cost of bonds.
c. calculate the cost of equity.
d. calculate the wacc
Answers: 1
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Jennifer purchased a house in a brand new development in the outskirts of town. when her house was built, the nearest fire department was nearly 20 miles away. as her neighborhood developed, the density of the community called for a new fire department 1.5 miles away. what effect will the new fire station have on her homeowners insurance premium? a. a new fire department will be more demanding on local taxes. her annual premium will go up. b. the location of a fire department has no bearing on the value of her house. her annual premium will stay the same. c. the new fire department will reduce the risk of financial loss in her home. her annual premium should decrease. d. with a fire department so close (less than 5 miles), financial risk on jennifer’s home practically disappears. she will not need to pay insurance anymore.
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The director for s corp. manufacturers of playground equipment, is considering a plan to expand prod...
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