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Jan. 1 the total market value of the Tysseland Co. was $60

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million. During the first...
Jan. 1 the total market value of the Tysseland Co. was $60 million. During the first year the company plans to raise & invest $30 million in new projects. The firms present market value structure is considered to be optimal. Assume that there is no short-term debt: Debt $30 million + common equity $30 million = $60 million total capital. New bonds will have a 8% coupon rate & they will be sold at par. Common stock is currently selling at $30 a share. Stockholders' required rate of return expected constant growth rate of 8%. (the next expected dividend pymt is $1.20, so $1.20/$30 = 4%) a. to maintain the present capital structure, how much of the new investment must be financed by common equity? the answer is $15,000,000 how do I arrive at this number? b. Assume there is sufficient cashflow so the co. can maintain its target capital structure w/o issuing additional shares of equity. what is the WACC? answer is 8.4%, how do I arrive at this number?
Submitted: 9 years ago.Category: Finance
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Answered in 4 minutes by:
11/19/2008
Financial Professional: Manal Elkhoshkhany, Tutor replied 9 years ago
Manal Elkhoshkhany
Category: Finance
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Hello and welcome to Just Answer

 

Kindly advise the name of the book you are using: Title, author's name, and edition

 

Thank you

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Customer reply replied 9 years ago
11TH EDITION, FINANCIAL MANAGEMENT, EUGENE BRIGHAM & MICHAEL EHRNHARDT
Financial Professional: Manal Elkhoshkhany, Tutor replied 9 years ago

Thank you

 

Please click here for the solution

 

P.S. If you like my work, please feel free to direct your future posts to me specifically by typing "For BusinessTutor" at the beginning of your post.

 

Please note that you did not type the tax rate, but I found the question and it stated that the tax rate is 40%

 

Regards,

Manal Elkhoshkhany
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Satisfied Customers: 9,898
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