Cost of capital problems?
Poulsbo Manufacturing inc currently pay no taxes, the All stock companies. The company's stock market value of 300 million. Unlevered cost of capital is 15% per year. Poulsbo 600,000.00 debt problems and debt Plans to use proceeds to repurchase the cost per year is 4% of the cicada.) Poulsbo and repurchase stock, what could the company 'weighted The average cost? b) After the buyback, which will be the cost of the asset? Description C) using the MM is a – what Proposition 2 would fund redemption pressure The average cost of after?
A.) Currently the company's general Is a 100% weighting in stocks. If they are using $ 600,000 in debt $ 3M Buyback of common stock investors in the silver section, they still $ 3.0M debt and common stock will be combined. Because they are real This is buying assets (and thus accounting equation = L The fact that + E) holds. Now they are just over $ 2.4m debt Capital and has $ 600,000. We find the weight of the new The following formula: WD a = total debt / (total debt + total common use Capital) WD a = 600,000 / 300 plaques that WD = 20% + E = Total common capital and debt is that we / (Total debt + total common equity), we = 2,400,000 / 300 = 80% of the plaques that we + e We now stock is common), some of which: WACC = (WD was the WACC is the required equation (1 – T) a (top) + (us) (re-) + (WP) (RP ) Location: WACC = weighted average cost of capital WD = weight of debt (%), we = Weight Common Capital (%) WP = weight preferred stock (%) Rd Debt (%) = the cost of ash Common Stock (%) in this example, the Rhineland = cost of preferred stock (%) T a = tax rate (%) = cost since there are no taxes or Preferred stock, greatly simplifying the problem. WACC = (20% * 4%) + (80% * 15%) WACC = 12.8% b.) If we found the bodies of the capital cost models do not use mm2 Are the same regardless of the capital structure of the company said. However, If we want to fix the cost of capital Modigliani – II, Miller proposed model can be used. ₩ 100,000,000 = Ro + (B Group / S a) * (Ro – rb) rb ₩ 10,000 shares of the company, all assets of the furnace The cost of debt B-/ S is the debt – more than the total capital – the capital Ratio (total liabilities) of the cost of capital costs ₩ 10,000 = 15% + (0.25) * (15-4%) ₩ 10,000 = 17.75%, why? Wikipedia, "a high Debt to Capital Stock ratio To demand a higher return, higher risk was due to lead-related The debt and stock holders in the company. "http://en.wikipedia.org/wiki/Modigliani-Miller_theorem C.) If we use the WACC mm2 model calculations, we find: WACC = (WD's) (1 – T) a (top) + (us) (re-) + (WP) (RP) WACC = (20% * 4%) + (80% * 17.75%) WACC = 15%
Real Estate & Capital Markets Update (1)