If Rose Gardens has the following capital weights for raising capital, determine the amounts that will be raised by debt, common stock and preferred stock – 40% debt, 20% preferred stock and 40% common stock. Keep in mind that Retained Earnings contains $250,000.
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NO.2
Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital:
- Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10.
- Rose Gardens can issue bonds with a par
value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. - Rose Garden’s is also considering selling
preferred stock that pays dividends of $2.00 and has a flotation cost of $10.
Requirement:
If Rose Gardens has the following capital weights for raising capital, determine the amounts that will be raised by debt, common stock and preferred stock – 40% debt, 20% preferred stock and 40% common stock. Keep in mind that
Make sure to support your answer with workings and explanations. Tax rate is 30%
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- Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital?Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? c) Evaluate the two finance options and identify which one they should choose? Assess the advantages and disadvantages of your choice?Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result. c) Evaluate the two finance options and identify…
- Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] Evaluate the two finance options and identify which…NO.1 Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital: Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10. Rose Gardens can issue bonds with a par value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. Rose Garden’s is also considering selling preferred stock that pays dividends of $2.00 and has a flotation cost of $10. Requirement: Calculate the value of each of the above securities. Keep in mind that the expected rate of return for all securities mentioned above is 7%. Make sure to support your answer with workings and explanations. Tax rate is 30%Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]
- Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. f Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]Your company is asking you as a CFO to consider your capital costs for your long term investment projects. As you collect the recent capital information as the follows: 1. Your company issue the common shares of Cnd$50/share, 2 million shares outstanding; Your company Beta is 2 and market risk free rate is 5% at this moment, and expected market return is 15%; 2. Your company issue the bond at the current quote of 900; Your coupon payment rate is 8%, while payment term is semi annual; the bond tenor is 20years; Your bond face value is 100million; 3. Your company also issue some preferred stocks at cnd$70/share, with dividend payment of cnd7/share, total amount of issue is 100million; Your corporate tax rate is 30%;A company needed ghc 1000 to finance its activities. The firm can financed this expenditure either by bonds or equity. Interest rate on bonds is 10%. The company can earn ghc 160 in good years and ghc80 in bad years. Assuming the firm faces equal probability of good and bad years; i What will be the stream of returns on both bonds and equity if the company chooses the following financing options a 100% equity financing b 50% equity financing c 20% equity financing d 0% equity financing ii Estimate the equity risk associated with each option in (i) iii As an investor who wants to purchase a share in the company, which financing option will make you purchase the stock. Why????
- Rose Gardens is looking into investing opportunities. The following are potential opportunities: Zipliners R Us is a fairly new business with a market price of $30 and Rose Gardens anticipates that their dividends will grow at a rate of 3% for the foreseeable future. The next dividend is expected to be $1.50. RBC Royal Bank is issuing bonds at a selling price of $950. The par value of the bond is $1,000 and RBC is offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Massy Ltd on the other hand is a matured company so their dividend has not changed in years. Their last dividends paid was $2.00. Massy Ltd. stock is currently being sold at $30. Microsoft Inc.is currently being sold at $235.75 per share. Rose Gardens found out that last year they paid dividends of $1.44 and they anticipate that the dividends would grow at a rate of 8% for years 1 & 2, then it would increase to 10% in years 3 & 4 and finally level off…To assist with evaluating potential capital projects, Insignia Corporation Limited is seeking to determine its Weighted Average Cost of Capital. Utilising information from the financial statements, the company has the following capital structure: Debt: Bonds outstanding has a face value of $835,000,000, currently selling at 105% of par. The coupon rate on these bonds is 9% and there is 10 years left to maturity. (Hint: you can use the lowest multiple of $1,000 for the YTM calculation only) Common stock: 13,000,000 shares of common stock outstanding with a market price of $60.00. The company has no preference shares outstanding. Additional Information: The Company’s tax rate is 30%. The current risk free rate is 3.50%; market return is 8%. The Company’s beta is 2.50. Required: Calculate the Weighted Average Cost of Capital for Insignia Corporation Limited.A firm can get $1,000,000 in exchange of 25% of its equity. After investing the amount raised in the firm, the firm expects to generate $300,000 in FCF next year, which is expected to grow at 4% in perpetuity after that. a) Calculate the cost of capital to the firm. Ignore corporate taxes. b) Rather than issuing equity, the firm can raise $1,000,000 by issuing a risk - free perpetual bond at 3%. Calculate the cost of capital to the firm. Ignore taxes. c) Calculate the cost of capital of the firm in a) and b) if corporate taxes are 20%. Please still assume that that like in a) the firm needs to give 25% of its equity to raise the $1,000,000 and like in b) the firm can issue $1,000,000 risk-free debt at 3%. d) Suppose that having debt creates financial distress costs so that the firm's cash-flows are reduced by 2% each year if $1,000,000 of debt is issued. (Other than the financial distress costs, assume that no direct bankruptcy costs are created by the debt.) Calculate the cost of…