Finance Cost of Capital - Cost of retained earnings

Document Sample
Finance Cost of Capital - Cost of retained earnings Powered By Docstoc
					              Sub: Finance                                                                                  Topic: Cost of Capital

              Question:
              Finding cost of retained earnings, common equity and WACC.

         ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in
                       Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.



                                                                  Cost of Capital

              Atlas Inc. is planning to invest in a 4-year project which has the same risk as the firm’s existing
              assets and operations. The project requires a $150,000 initial investment and is expected to
              generate equal annual after-tax cash flows for the next 4 years. In consultation with investment
              bankers, Atlas expects to be able to issue new debt at par with a coupon rate of10% and to
              issue new preferred stock with a $3 per share dividend at $30 a share. The common stock of
              the company is currently selling for $25.00 a share. Atlas Inc. expects to pay a dividend of $1
              per share next year. Market analysts foresee a growth in dividends in Atlas stock at a rate of
              10% per year. Atlas’s marginal tax rate is 30%.



              (a) If Atlas raises capital using 45% debt, 5% preferred stock, and 50% common stock, what is it
				
DOCUMENT INFO
Description: Finding cost of retained earnings, common equity and WACC. - Atlas Inc. is planning to invest in a 4-year project which has the same risk as the firm’s existing assets and operations.
BUY THIS DOCUMENT NOW PRICE: $15 100% MONEY BACK GUARANTEED
PARTNER ClassOf1 .Com
Classof1 is a supplemental education company providing comprehensive online tutoring, homework guidance, and e-learning courseware development services to the school, college, and university student communities. As a part of its endeavor to help students around the world to excel in their studies, Classof1 has built a repository of self-study guides with step-by-step solutions and lucid explanations. These guides have been created and whetted by expert tutors with several years of experience in education. Apart from Docstoc.com, these self-help guides are also available at Classof1’s Solution Library (http://classof1.com/solution-library). Please visit www.classof1.com for further information.