Miss Natalia

(14)

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About Miss Natalia

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Elementary,High School,College,University

Expertise:
Accounting,Business & Finance See all
Accounting,Business & Finance,Calculus,Computer Science,Environmental science,Health & Medical Hide all
Teaching Since: Apr 2017
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Education

  • Doctor of Education in Educational Leadership with a Specialization in Educational Technology
    Phoniex University
    Oct-1999 - Nov-2005

Experience

  • HR Executive
    a21, Inc.
    Nov-1998 - Dec-2005

Category > Business & Finance Posted 13 Jun 2017 My Price 5.00

What are some of the advantages and disadvantages of raising capital by using debt?

Type: Individual Project
Unit:  Cost of Capital
Due Date:  Wed, 6/14/17
Grading Type: Numeric
Points Possible:  150
Points Earned:  0
Deliverable Length:  A spreadsheet file and a 700-1000 word report that addresses the qualitative questions.
 

 

 

 

 

 

A company is looking to finance a project with $5 million of common stock, $3 million of preferred stock, and $10 million of corporate bonds. The risk-free rate is 3% and the expected rate of return on the overall stock market is 8%. The beta of the common stock is 0.78. The cost of the preferred stock is 8.5%. The company’s bonds have a coupon rate of 6%, a time to maturity of 12 years, a $1,000 par value, and currently sell for $840. Interest on the bonds is due every six months. The firm’s tax rate is 35%.

What’s the weighted average cost of capital for this project?

Also, answer these qualitative questions:

  • How would "floatation costs" impact the WACC?
  • If the after-tax cost of debt is always less expensive than equity, why don't firms always use a lot of debt and little equity?
  • What are some of the advantages and disadvantages of raising capital by using debt?

Answers

Miss Natalia
(14)
Status NEW Posted 13 Jun 2017 02:06 AM My Price 5.00

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