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Category > Accounting Posted 24 May 2017 My Price 7.00

WACC Lancaster Engineering Inc. (LEI) has the following capital structure

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.

 

Answers

Alpha Geek
(8)
Status NEW Posted 24 May 2017 12:05 PM My Price 7.00

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file 1495628057-Answer.docx preview (226 words )
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