Maurice Tutor

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    Argosy University/ Phoniex University/
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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 08 Jan 2018 My Price 7.00

WACC Lancaster Engineering Inc

WACC Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal:

.

LEI’s expected net income this year is $34 285 72; its established dividend payout ratio is 30%; its federal-plus-state tax rate is 40%; and investors expect future earnings and dividends to grow at a constant rate of 9%. LEI paid a dividend of $3 60 per share last year, and its stock currently sells for $54 00 per share. LEI can obtain new capital in the following ways:

• New preferred stock with a dividend of $11 00 can be sold to the public at a price of $95 00 per share.

• Debt can be sold at an interest rate of 12%.

a. Determine the cost of each capital component.

b. Calculate the WACC.

c. LEI has the following investment opportunities that are average-risk projects:

Which projects should LEI accept? Why? Assume that LEI does not want to issue any new common stock.

 

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Maurice Tutor
(5)
Status NEW Posted 08 Jan 2018 09:01 PM My Price 7.00

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