Principles of Managerial Finance

end of which each plan would be liquidated. The relevant cash flows associated with each plan are summarized in the accompanying ...

c. Compare and contrast your finding in parts aand b.Which plan would you recommend? Did explicit recognition of the risk differ ...

L asting Impressions (LI) Company is a medium-sized commercial printer of promotional advertising brochures, booklets, and other ...

The firm estimates that its profits before depreciation and taxes with the old press and with press A or press B for each of the ...

467467 PART 4 LONG-TERM FINANCIAL DECISIONS CHAPTERS IN THIS PART 11 The Cost of Capital 12 Leverage and Capital Structure 13 Di ...

LEARNING GOALS 468 THE COST OF CAPITAL CHAPTER Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU Accounting:You need to und ...

469 N extel, the fifth largest mobile-phone company in the United States, offers its customers unique technology that combines a ...

470 PART 4 Long-Term Financial Decisions 11.1 An Overview of the Cost of Capital The cost of capitalis the rate of return that a ...

CHAPTER 11 The Cost of Capital 471 say that although firms raise money in lumps, they tend toward some desired mix of financing. ...

472 PART 4 Long-Term Financial Decisions firm’s fixed-asset investments.^1 We assume throughout the chapter that such investment ...

11.2 The Cost of Long-Term Debt Thecost of long-term debt,ki,is the after-tax cost today of raising long-term funds through borr ...

474 PART 4 Long-Term Financial Decisions maturity can be calculated by using either a trial-and-error technique^3 or a finan- ci ...

CHAPTER 11 The Cost of Capital 475 The initial $960 inflow is followed by annual interest outflows of $90 (9% coupon interest ra ...

476 PART 4 Long-Term Financial Decisions EXAMPLE Duchess Corporation has a 40% tax rate. Using the 9.4% before-tax debt cost cal ...

Because preferred stock dividends are paid out of the firm’s after-taxcash flows, a tax adjustment is not required. EXAMPLE Duch ...

478 PART 4 Long-Term Financial Decisions model,also known as theGordon model.The key expression derived for this model was prese ...

Using the Capital Asset Pricing Model (CAPM) Recall from Chapter 5 that the capital asset pricing model (CAPM)describes the rela ...

The Cost of Retained Earnings As you know, dividends are paid out of a firm’s earnings. Their payment, made in cash to common st ...

CHAPTER 11 The Cost of Capital 481 offerings of common stock. Flotation costs paid for issuing and selling the new issue will fu ...

11 – 10 Why is the cost of financing a project with retained earnings less than the cost of financing it with a new issue of com ...