FIN 310 GBC Tax Bracket Retaining of New Earnings Plan to Raise New Capital Worksheet

I’m working on a Accounting exercise and need support.

Don't use plagiarized sources. Get Your Custom Essay on
FIN 310 GBC Tax Bracket Retaining of New Earnings Plan to Raise New Capital Worksheet
Just from $13/Page
Order Essay

Create an Excel spreadsheet to organize your answers to the following problem, and submit your Excel file as an attachment by clicking on the appropriate button on this page.

A firm that is in the 35% tax bracket forecasts that it can retain $4 million of new earnings plans to raise new capital in the following proportions:

60% from 30-year bonds with a flotation cost of 4% of face value. Their current bonds are selling at a price of 91 (91% of face value), have 4 years remaining, have an annual coupon of 7%, and their investment bank thinks that new bonds will have a 40 basis point (0.40%) higher yield-to-maturity than their current 4-year bonds due to their longer term. Any new bonds will be sold at par.
10% from preferred stock with a flotation cost of 5% of face value. The firm currently has an outstanding issue of $30 face value fixed-rate preferred stock with an annual dividend of $2 per share, and the stock is currently selling at $27 per share. Any newly issued preferred stock will continue with the $30 par-value, and will continue with the $2 dividend.
30% from equity. Their common dividend payout ratio is 60%, they paid a dividend of $1.59 per share yesterday, the dividend is expected to grow to $4.22 in 20 years, and is expected to continue this growth rate into the foreseeable future. The common stock has a current market price of $19, and their investment banker suggests a flotation cost of 7% of market value on new common equity.

Part 1: Calculate the after-tax cost of the new bond financing. ___________

Part 2: Calculate the after-tax cost of the new preferred stock financing. ______

Part 3: Calculate the after-tax cost of retained earnings financing. _______

Part 4: Calculate the after-tax cost of the new common equity financing. ______

Part 5: Calculate the company’s WACC using retained earnings as the source of equity. __________

Part 6: Calculate the break point in the cost of capital schedule due to running out of retained earnings. __________

Part 7: Calculate the company’s WACC after it substitutes the new common stock issue for retained earnings after it runs out of retained earnings. _________

Part 8: If the bonds had an after tax cost of 5.2% rather than the number you calculated in part #1 above, what would be the WACC using retained earnings as the source of equity?

Part 9: If you have done the calculations above correctly, the after-tax cost of debt for this company is lower than the cost of equity when using retained earnings as the equity source. Explain why raising capital by borrowing is less costly than using your own funds on which you do not have to pay any interest at all.

Part 10: Briefly explain the conceptual difference between the after-tax cost of retained earnings and the after-tax cost of new common stock.

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with AssignmentsPros
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
YES! Thanks a lot!!!
Customer 452443, January 31st, 2021
Thank you!!!
Customer 452443, August 2nd, 2021
Art (Fine arts, Performing arts)
Thank you.
Customer 452453, March 13th, 2021
Life Saver!!!!
Customer 452443, February 6th, 2021
Customer reviews in total
Current satisfaction rate
3 pages
Average paper length
Customers referred by a friend
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Live Chat+1 (985) 289-4677WhatsApp

Order your essay today and save 30% with the discount code ESSAYHELP