NCC Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 40% of money will come from issuing bonds, and 60% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock. NCC Corporation will issue bonds with an interest rate of 9%, up to $30 million dollars in bonds. After issuing $30 million in bonds, the interest cost will rise to 12.5%. The next dividend on common stock is expected to be $2.00 per share. The stock price is $16.00 per share, and is expected to grow at 3% per year. The flotation cost for issuing new common stock is estimated at 12%. NCC Corporation has $66 million in retained earnings that can be used. The tax rate for NCC Corporation is 35%. What is the initial weighted average cost of capital (WACC) for NCC Corporation? 11.90% 11.77% 12.9% 15.3% 11.64%

NCC Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 40% of money will come from issuing bonds, and 60% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock. NCC Corporation will issue bonds with an interest rate of 9%, up to $30 million dollars in bonds. After issuing $30 million in bonds, the interest cost will rise to 12.5%. The next dividend on common stock is expected to be $2.00 per share. The stock price is $16.00 per share, and is expected to grow at 3% per year. The flotation cost for issuing new common stock is estimated at 12%. NCC Corporation has $66 million in retained earnings that can be used. The tax rate for NCC Corporation is 35%. What is the initial weighted average cost of capital (WACC) for NCC Corporation? 11.90% 11.77% 12.9% 15.3% 11.64%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 15P

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NCC Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 40% of money will come from issuing bonds, and 60% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock. NCC Corporation will issue bonds with an interest rate of 9%, up to $30 million dollars in bonds. After issuing $30 million in bonds, the interest cost will rise to 12.5%. The next dividend on common stock is expected to be $2.00 per share. The stock price is $16.00 per share, and is expected to grow at 3% per year. The flotation cost for issuing new common stock is estimated at 12%. NCC Corporation has $66 million in retained earnings that can be used. The tax rate for NCC Corporation is 35%. There are two breakpoints in NCC's capital structure. At what point does the first breakpoint occur? $75 million $100 million $110 million $125…
Eagle Sports Products (ESP) is considering issuing debt to raise funds to financeits growth during the next few years. The amount of the issue will be between$35 million and $40 million. ESP has already arranged for a local investmentbanker to handle the debt issue. The arrangement calls for ESP to pay flotationcosts equal to 4 percent of the total market value of the issue.a. Compute the flotation costs that ESP will have to pay if the market valueof the debt issue is $39 million.b. If the debt issue has a market value of $39 million, how much will ESP beable to use for its financing needs? That is, what will be the net proceedsfrom the issue for ESP? Assume that the only costs associated with the issueare those paid to the investment banker.c. If the company needs $39 million to finance its future growth, how muchdebt must ESP issue?
NCC Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 40% of money will come from issuing bonds, and 60% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock. NCC Corporation will issue bonds with an interest rate of 9%, up to $30 million dollars in bonds. After issuing $30 million in bonds, the interest cost will rise to 12.5%. The next dividend on common stock is expected to be $2.00 per share. The stock price is $16.00 per share, and is expected to grow at 3% per year. The flotation cost for issuing new common stock is estimated at 12%. NCC Corporation has $66 million in retained earnings that can be used. The tax rate for NCC Corporation is 35%.At what point does the second breakpoint occur? $50 million $75 million $125 million $100 million $110 million
NCC Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 40% of money will come from issuing bonds, and 60% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock. NCC Corporation will issue bonds with an interest rate of 9%, up to $30 million dollars in bonds. After issuing $30 million in bonds, the interest cost will rise to 12.5%. The next dividend on common stock is expected to be $2.00 per share. The stock price is $16.00 per share, and is expected to grow at 3% per year. The flotation cost for issuing new common stock is estimated at 12%. NCC Corporation has $66 million in retained earnings that can be used. The tax rate for NCC Corporation is 35%. What is the WACC after the second breakpoint? 12.55% 19.10% 13.57% 16.66% 15.3%
NCC Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 40% of money will come from issuing bonds, and 60% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock. NCC Corporation will issue bonds with an interest rate of 9%, up to $30 million dollars in bonds. After issuing $30 million in bonds, the interest cost will rise to 12.5%. The next dividend on common stock is expected to be $2.00 per share. The stock price is $16.00 per share, and is expected to grow at 3% per year. The flotation cost for issuing new common stock is estimated at 12%. NCC Corporation has $66 million in retained earnings that can be used. The tax rate for NCC Corporation is 35%. What is the weighted average cost of capital after the first breakpoint? 12.55% 15.3% 13.55% 12.9% 11.77%
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