Solved: The total assets of the Dexter Company are 270

million

The total assets of the Dexter Company are $270 million, and the firm’s present capital
structure, which follows, is considered to be optimal. Assume that there is no short-term debt.
Long-term debt ........... $135,000,000
Common equity ........... 135,000,000
Total liabilities and equity ...... $270,000,000
New bonds will have a 10 percent coupon rate and will be sold at par. Common stock, currently
selling at $60 a share, can be sold to net the company $54 a share. Stockholders’ required rate
of return is estimated to be 12 percent, consisting of a dividend yield of 4 percent and an
expected growth rate of 8 percent. (The next expected dividend is $2.40, so $2.40/$60 = 4%.)
Retained earnings are estimated to be $13.5 million. The marginal tax rate is 40 percent. Dexter
has determined that acceptable investment opportunities total $70 million.
a. To maintain the present capital structure, how much of the total investment opportunities
must Dexter finance by equity?
b. How much of the new equity funds needed will be generated internally? Externally?
c. Calculate the cost of each of the equity components.
d. At what level of capital expenditure (investment) will there be a break in Dexter’s MCC
schedule?
e. Calculate the WACC (1) below and (2) above the break in the MCC schedule.
f. Plot the MCC schedule. Also, draw in an IOS schedule that is consistent with both the MCC
schedule and the projected capital budget. (Any IOS schedule that is consistent will do.)

The total assets of the Dexter Company are 270 million

ANSWER
https://solvedquest.com/the-total-assets-of-the-dexter-company-are-270-million/

Reach out to freelance2040@yahoo.com for enquiry.

Powered by TCPDF (www.tcpdf.org)