Nealon Energy Corp. constructing a natural gas gathering center estimated cost of $70 million. To finance, Nealon has $20 million in profits to finance a portion of teh expansion and plans to sell a bond issue to raise the remaining $50 million.The following balance sheet reflects the mix of capital sources that Nealon has used in the past.
Source of Financing Target Capital Structure Weights
Common Stock 60%
The firm currently has one issue of bonds coutstanding. The bonds have a par value of $1000 per bond, carry an 8% coupoun rate of interest, 16 years to maturity, and sellin for $1,035. Common stock current market price of $35 and paid a $2.50 dividned lasy year that is expected to increase at an annual rate of 6%.
a. What is the yield to maturity for Nealon's bonds under current market conditions?
b. Waht is the cost of new debt financing to Nealon based on current market prices after both taxes (34% marginal tax rate) and floatation costs of $30 per bond?
c. What is the investor's required rate of return for Nelaon's common stock? If Nealon were to sell new shares of common stock it would incur a cost of $2.00per share. What is your estimate of the cost of new equity financing raised from the sale of common stock?
d. Compute the weighted average cost of capital for Nealon's investment unsing the weighs reflected in the actual financing mix (that is $20 mil in retained earnings and $50 mil in bonds).
e. Compute the weughted average cost of capital for Nealon where the firm maintains its target capital structure by reducing debt offering to 40% of teh $70 mil in new capital, or $28 mil using $20 mil in retained earnings and raisng $22 mil througha new equity offering
f. If you were the CFO for the company, would you prefer to use the calculation cost of capital in part (d) or (e) to evaluate the new project? Why?
Ammonia, NH3, is a weak electrolyte. It forms ions in solution by reacting with water molecules to form the ammonium ion and hydroxide ion. Write the balanced chemical re...May 22 2021
On January 1, 2018, Allied Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2021, at which time possession of t...Apr 24 2020
Which of the following functions f has a revovalble discontinuity at a? If the discontinuity is revovable, find a function g that agrees with f for and is continuous ...Jun 27 2021
Best-Fit Line a. What is a residual? b. In what sense is the regression line the straight line that “best” fits the points in a scatterplot?May 20 2021
How can a business owner who earns $10 million per year from his business credibly claim to earn zero economic profit?May 14 2020
Use the Ratio Test to determine whether the series is convergent or divergent. (-1)- 1 71 ^ 3nn3 n = 1 Identify an Evaluate the following limit. lim an+1 an n00 a n+ 1 Si...May 31 2021
Find a linearization that will replace the function over an interval that includes the given point Xo. Center the linearization not atxo but at a nearby integer, x= a, at...Apr 28 2021
Mr. and Mrs. Lear filed their 2015 Form 1040 on April 1, 2016. In 2017, the IRS issued a notice of deficiency, in which it assessed $19,044 of additional 2015 income tax....Aug 12 2021
Carte Blanco Company is evaluating an investment of $1,000,000 which will yield cash flows of $257,000 per year for 5 years with no residual value.Present Value of an Ann...Dec 25 2019
1. Describe some potential pitfalls in relying solely on the results of a factor-weighting analysis for supplier selection.2. Describe some disadvantages of using a slow ...Jun 15 2020