Corporate Finance

posted by .

You are given the following for Cardinal & Cardinal, Inc. Their tax rate is 34%. The firm is in need of $5 million dollars in external funds. Your bond advisor suggests that new bond issues can be lower than the current yield to maturity by 1.5% .
Existing capital structure:
• C&C Debt: 4,000 Eight percent (8%) coupon bonds outstanding. The par value is $1000 and they mature in ten years. They are currently selling for $1010 and make semiannual payments.
• C&C Equity: 50,000 shares outstanding. The common stock is currently selling for $62 per share. The beta for the company is 1.10.
• C&C Preferred Stock: 9,000 shares of 4% preferred stock with a par value of $100, and is currently selling for $60 per share.
• Market Information: The risk of the market is 8% and the risk-free rate is 3%. The industry debt-equity ratio is 33%. The flotation rate for debt is 3% and for equity it is 4%.
Calculate the existing weighted average cost of capital, Calculate the new cost of capital when the $5M in new funds is added. Show your calculations of the capital structure, assess the capital structure, compare recommend the new funding choice impacts on capital structure, and determine the firm’s new weighted average cost of capital

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Federal Tax II

    Perry organized Cardinal Corporation 10 years ago by contributing property worth $2 million, basis of $450,000 for 2,500 shares of stock in Cardinal, representing 100% of the stock in the corporation. Perry later gave each of his children, …
  2. finance

    Given the following table: Type of Security Interest Rate 5-Year Treasury Note 5% 5-Year Corporate Bond (High quality) 6% 5-Year Corporate Bond (Low quality) 8% Calculate the default risk premium (DRP) on the Corporate bonds.
  3. finance

    Consider the following four debt securities, which are identical in every characteristic except as noted: W: A corporate bond rated AAA X: A corporate bond rate BBB Y: A corporate bond rated AAA with a shorter time to maturity than …
  4. Corporate finance

    A 1,000 face value bond has a remaining maturity of 8 years and a required return of 7%. The bond's coupon rate is 8%. What is the fair value of bond?
  5. Finance

    Answers for a 10 year us treasury bond has a 3.50 % interest rate, while a same maturity corporate bond has a 5.25 % interest rate. Real interest rates and inflation rate expectations would be for the two bonds. if default risk premium …
  6. Finance

    Mr. Brown is in the 10% federal income tax bracket and wants to invest $8,000 in interest-earning assets. Mr. Black is in the 35% bracket and wants to invest $15,000. The current rate on a typical high-quality tax-exempt municipal …
  7. finanace

    Compute the cost of the capital for the firm for the following:?
  8. Finance

    Explain how a firm that has issued a floating-rate bond with a coupon equal to the LIBOR rate can use swaps to convert that bond into a synthetic fixed-rate bond.
  9. FINANCE

    12. Bond Quotes Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?
  10. Need help by tonite Finance

    15. Bond ratings and prices A corporate bond with an 8.5 percent coupon has 10 years left to maturity. It has had a credit rating of A and a yield to maturity of 10 percent. The firm has recently gotten into some trouble and the rating …

More Similar Questions