Harris International currently pays a dividend of $3.24 per share on its preferred stock that sells for $54 per share. In order to raise capital to purchase a smaller competitor, the company plans to issue 2.7 million shares of preferred stock at a 10% discount to its current price. Determine (a) the amount of funding that Harris will realize through the stock offering, and (b) the cost of equity financing.
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Harris International currently pays a dividend of
$3.24 per share on its
$54 per share. In order to raise capital to purchase a
smaller competitor, the company plans to issue
2.7 million shares of preferred stock at a 10% discount
to its current price. Determine (a) the amount
of funding that Harris will realize through the stock
offering, and (b) the
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- The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,500,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 9%, and project Delta has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $325,000 Year 2 $450,000 Year 3 $400,000 Year 4 $475,000Innis consulting groups investment manager funds for a number of companies and wealthy Clients. The investment strategy is tailored to each client’s needs .For a new clients, Innis has been authorized to invest up to $1.2 million in two investment funds :a stock funds and money market fund. Each unit of the stock fund costs $ 50 and provides an annual rate of return of $5 per dollar invested : :each units of the money market funds cost $100 and provides an annual rate of return $4 for each dollar invested . The clients wants to minimize risks subject to the requirements that the annual income from the investment be at least $60,000.Accoording to Innis’s risks measurements system .each units invested in the stock fund has a risks index of 8,and each units invested in the money market funds has a risks index of 3;the higher risks index associated with the stock funds simply indicated that it is the riskier investment . Inni’s client s also specified that at least $300,000 be…If MM’s Proposition I holds, minimizing the weighted average cost of capital (WACC) is the same as maximizing the_____: Multiple Choice A) book value of the firm. B) market value of the firm. C) liquidating value of the firm. D) profits of the firm.
- Tiffany Baking Co. wants to arrange for $37.5 million in capital for manufacturing a new baked potato chip product line. The current financing plan is 60% equity and 40% debt capital. Calculate the expected WACC for the following financing scenario: Equity capital: 60%, or $22.5 million, via common stock sales for 40% of this amount that will pay dividends at a rate of 5% per year, and the remaining 60% from retained earnings, which currently earn 9% per year. Debt capital: 40%, or $15 million, obtained through two sources: bank loans for $10 million borrowed at 8% per year, and the remainder in convertible bonds at a coupon rate estimated to be 10% per year.The expression “6/10, net 45” means that the customers receive a 6% discount if they pay within 10 days; otherwise, they must pay in full within 45 days. What would the seller's cost of capital have to be in order for the discount to be cost justified? 66.5714% 62.5714% 65.5714% 61.5714%Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers. If your average variable cost C=$20/unit, annualized cost of investment to build a hard drive factory I=$30 million, and market price (bailout market price in the event Dell does not buy) Pm=$22/unit, what is your company's RSI (relationship specific investment)?
- Which of the following might be considered by top management of an organization when setting a Minimum Attractive Rate of Return (MARR)? (a) The amount of money available for investment, and the source and cost of these funds (i.e., equity funds or borrowed funds) (b) The number of good projects available for investment and their purpose (i.e., whether they sustain present operations and are essential, or whether they expand on present operations and are elective) (c) The amount of perceived risk associated with investment opportunities available to the firm and the estimated cost of administering projects over short planning horizons rather than long planning horizons (d) The type of organization involved (i.e., government, public utility, or private industry) (e) All of the aboveASAPAssume that the risk-free rate (RF) is 3% and the market risk premium (km - Rp) is 8%. If the value of beta (B) is 0.5, the value for the component cost of equity financing is 3%. 7%. 11%. 5%.
- Identify the special cash flow category for each of the following. While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product. Ultimately that project was not pursued. You are now evaluating a new project and would locate production inside of this building. What type of cash flow is the cost of the building? You hope to increase membership at your yoga studio by opening a smoothie bar inside of the yoga studio. When considering the feasibility of the smoothie bar, what type of cash flow is the increased studio membership? Suppose Walker Publishing Company is considering bringing out a new finance text whose projected revenues include some revenues that will be taken away from another of Walker's books. What type of cash flow are the lost sales on the older book? You currently operate a taco truck but are considering converting the food truck into a bubble tea truck. What type of cash flow are the profits currently earned…The preferred stock of McKinney lines , inc, pays an annual dividend of $6.45 and sells for$75.70 a share what is the rate of return on this sicurity?A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4,231 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit. Identify seven combinations of project investments and a bank deposits which exhaust the budget. Which of the above combinations should the firm choose when the bank deposit rate is (i) 15% or (ii) 20%? Explain your answer and show your work. Suppose there is no option to deposit in the bank, but the projects are "divisible" (e.g. you may have 25% of project A). Which combination should the firm choose? Explain your answer and show your work. Use 15% as the deposit rate (discount rate).