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    Finance: Weighted average cost of capital

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    ADB Corporation is considering building a new facility in Texas. To raise money for the capital projects,
    the corporation plans the following capital structure: 30% of money will come from issuing bonds,
    and 70% will come from Retained Earnings or new common stock.

    The corporation does not currently have preferred stock. ADB Corporation will issue bonds with an interest rate of 8%
    up to $30 million dollars in bonds. After issuing $30 million in bonds, the interest cost will rise to 12.5%.

    The next dividend on common stock is expected to be $2.00 per share. The stock price is $25.00 per share, and is expected
    to grow at 3% per year. The flotation cost for issuing new common stock is estimated at 10%.

    ADB Corporation has $66 million in retained earnings that can be used.

    The tax rate for ADB Corporation is 35%.

    1. What is the initial weighed average cost of capital (WACC) for ADB Corporation?

    2. There are two breakpoints in ADB's capital structure. At what point does the first breakpoint occur?

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    https://brainmass.com/business/weighted-average-cost-of-capital/finance-weighted-average-cost-capital-261797

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    QUESTION

    ADB Corporation is considering building a new facility in Texas. To raise money for the capital projects,
    the corporation plans the following capital structure: 30% of money will come from issuing bonds,
    and 70% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock. ADB Corporation will issue bonds with an interest rate of 8% up ...

    Solution Summary

    The problem deals with determining the cost of capital with provided information.

    $2.19