share. LEI can obtain new capital in the following ways: Common: New common stock has a flotation cost of 10% for up to $12‚000 of new stock and 20% for all common over $12‚000. Preferred: New preferred stock with a dividend of $11 can be sold to the public at a price of $100 per share. However‚ flotation costs of $5 per share will be incurred for up to $7‚500 of preferred‚ and flotation costs will rise to $10 per share‚ or 10%‚ on all preferred mover to $7‚500 Debt: Up to $5‚000 of debt can
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of the more notable of these financing flaws is the drastic spikes in short term borrowings shown in the balance sheet. This is something that must be addressed as the company moves forward. On the operating end of the spectrum‚ the Inventories to Cost of Goods Sold ratio is a cause for concern. This figure can signify an inability for the company to forecast the demanded for CD-ROMs to the amount
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Equity = $90 A. What is the firm’s weighted-average cost of capital at various combinations of debt and equity‚ given the following information? Debt/Assets | After-tax Cost of Debt | Cost of Equity | Cost of Capital | 0% | 8% | 12% | 12.00% | 10% | 8% | 12% | 11.60% | 20% | 8% | 12% | 11.20% | 30% | 8% | 13% | 11.50% | 40% | 9% | 14% | 12.00% | 50% | 10% | 15% | 12.50% | 60% | 12% | 16% | 13.60% | K=(weight*cost of debt)+( weight*cost of equity) A. (0% x 8%) + (100% x 12%)
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Its cost of equity is 12.5 percent‚ the cost of preferred stock is 5.5 percent‚ and the cost of debt is 7.2 percent. The relevant tax rate is 35 percent. a. What is Mullineaux’s WACC? b. The company president has approached you about Mullineax’s capital structure. He wants to know why the company doesn’t use more preferred stock financing‚ since its cost less than debt. What would you tell the president? Weighted average Cost of Capital = E/V * Cost of Equity + D/V * cost of debt
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Home Depot Fiscal year end of Jan. 29‚ 2012 1. What is the name of the company? Home Depot. What is the industry sector? Home Improvement Retailer. 2. What are the operating risks of the company? * Uncertainty regarding current economic conditions. * Competition. * Timely identifying changes in demand. * Relationships with suppliers and disruptions in the supply chain. * Failure of key information technology or process; including customer facing and privacy disruptions
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Financial Management Agenda 1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2. If you do not agree with Cohen’s analysis‚ calculate your own WACC for Nike and justify your assumptions. 3. Calculate the costs of equity using CAPM‚ the dividend discount model‚ and the earnings capitalization ratio. What are the advantages and disadvantages of each method? 4. What should Kimi Ford recommend regarding
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calculation of preferred stock price‚ rate of return for preferred stock given other variables (including flotation cost) calculation of cost of equity from retained earnings using CAPM APPROACH calculation of weighted average cost of capital (WACC) calculation of component cost of debt in WACC calculation of cost of equity from retained earnings using dcf apporach calculation of cost of equity by selling new common stock using dcf apporach Calculation of NPV‚ IRR‚ MIRR‚ and Payback period
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Red Hen Baking Company Red Hen Baking Company Case Study Company profile Randy George established Red Hen Baking Company in 1999. Red Hen Baking Company specializes in artisan bread and their mission is “to produce premium quality breads and pastries with traditional methods and carefully selected high quality ingredients. To do this while striving to minimize our impact on the environment‚ to support the growers and producers of our ingredients‚ and to provide the finest baked goods and
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Creating Public Shares According to Brau and Fawcet (2004)‚ the most common reason CFOs choose to provide an IPO on their firm is to create public shares for use in future acquisitions. While Rosetta Stone may not have immediate acquisition plans‚ the public offering of their shares will provide new capital for them to continue to expand. Only 5% of their revenue comes from outside of the United States‚ and with increased capital from an IPO‚ Rosetta Stone can look to pursue new markets (Schill
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market portfolio is often represented by: A. a portfolio of U.S. Treasury securities. B. a diversified stock market index. C. an investor ’s mutual fund portfolio. D. the historic record of stock market returns. 3. A stock ’s beta measures the: A. average return on the stock. B. variability in the stock ’s returns compared to that of the market portfolio. C. difference between the return on the stock and return on the market portfolio. D. market risk premium on the stock. 4. If the slope of the line
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