Maurice Tutor

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Teaching Since: May 2017
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  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 23 Jan 2018 My Price 6.00

Ranch Manufacturing

 
 

AS a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to computer the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm's present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value fo the firm's capital structure as follows. To finance the purcahse, Ranch Manufacturing will sell 10-year bonds paying 6.8% per year at the market price of $1,062. Preferred stock is paying $2.06 dividend can be sold for $24.91. Common stock for Ranch Manufacturiing is currently selling for $55.88 per shar and the firm paid a $2.92 dividend last year. Dividens are expected to continue growing at a rate of 5.1% per year into the indefinite future. If the firm's tax rate is 30%, what discount rate should you use to evaluate the equipment purchase?

 

Source of Capital

Market Values

Bonds

$4,000,000

Preferred stock

$1,900,000

Common stock

$5,600,000

 

Answers

Maurice Tutor
(5)
Status NEW Posted 23 Jan 2018 10:01 PM My Price 6.00

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