Principles of Managerial Finance

CHAPTER 11 The Cost of Capital 483 The company uses the following weights in calculating its weighted average cost of capital: B ...

flows to which the cost of capital is applied are estimated in terms of current as well as future market values. Market value we ...

average cost of capital.Therefore, it is useful to calculate theweighted marginal cost of capital (WMCC),which is simply the fir ...

486 PART 4 Long-Term Financial Decisions Calculating the WMCC Once the break points have been determined, the next step is to ca ...

CHAPTER 11 The Cost of Capital 487 weighted marginal cost of capital (WMCC), which increases as levels of total new financing in ...

TABLE 11.3 Investment Opportunities Schedule (IOS) for Duchess Corporation Internal rate Initial Cumulative Investment of return ...

CHAPTER 11 The Cost of Capital 489 Using the WMCC and IOS to Make Financing/Investment Decisions As long as a project’s internal ...

490 PART 4 Long-Term Financial Decisions IRR andka, down to the point at which IRR just equalska, should result in the maximum t ...

CHAPTER 11 The Cost of Capital 491 can result in the mistaken acceptance of poor projects, whereas overestimation can cause good ...

492 PART 4 Long-Term Financial Decisions TABLE 11.4 Summary of Key Definitions and Formulas for Cost of Capital Definitions of v ...

SELF-TEST PROBLEM (Solution in Appendix B) ST 11–1 Specific costs, WACC, WMCC, and IOS Humble Manufacturing is interested in mea ...

494 PART 4 Long-Term Financial Decisions c. Using the results of part balong with the information shown in the following table o ...

c. Had the firm used the weighted average cost calculated in part b,what actions would have been indicated relative to projects ...

496 PART 4 Long-Term Financial Decisions 11 – 5 Cost of preferred stock Taylor Systems has just issued preferred stock. The stoc ...

CHAPTER 11 The Cost of Capital 497 c. Using the constant-growth valuation model, determine the cost of retained earnings, kr. d. ...

a. Calculate the firm’s weighted average cost of capital using book value weights. b. Explain how the firm can use this cost in ...

CHAPTER 11 The Cost of Capital 499 b. Calculate the weighted average cost of capital on the basis of target market value weights ...

500 PART 4 Long-Term Financial Decisions It is expected that in order to sell, new common stock must be underpriced $5 per share ...

a. Calculate the specific cost of each source of financing. (Round answers to the nearest 0.1%.) b. The firm’s capital structure ...

502 PART 4 Long-Term Financial Decisions a. Determine the break points and ranges of totalnew financing associated with each sou ...