No.

19
Market Value
Proceeds Par Amount Term % Nominal
Debts 40,000,000 1.198 47,920,000 25 yrs 0.260 7.0%
Zero Coupon 122,700 150,000 1.182 122,700 30 yrs 0.001 -
Preferred 10,000,000 0.78 7,800,000 0.042 4.0%
Common 117,000,000 1.10 128,700,000 0.697
184,542,700 1.000

Par Value
Debts 40,000,000 0.239 7.0%
Zero Coupon 150,000 0.001 -
Preferred 10,000,000 0.060 4.0%
Common 117,000,000 0.700 -
167,150,000 1.000

NO.22 Proceeds %
Debt 70 0.41176 0.70 18,526,500 0.4118 0.08
Equity 100 0.58824 26,473,500 0.5882
170 45,000,000 1.0000
Par 100
Floatation cost 8
Net Proceeds 92

Op 1 Full Equity 48,913,043 Stock to issue

45,000,000 Proceeds

Nominal
Op 2 Debt 45,000,000 Proceeds 0.08
46,875,000 To Borrow

Op 3
Accts Payable 0.2 9,000,000 Credit facility from Supplier
Debts 0.4117 0.8 37,500,000 LTD to avail
Total 46,500,000
45,000,000 Proceeds

e.g. Debt of P10M @ 10% No Debt w/ Debt

Operating Income 7,500,000 7,500,000
Interest - 1,000,000
Taxable Income 7,500,000 6,500,000
35% Income Tax 2,625,000 2,275,000
Net Income 4,875,000 4,225,000
 Tax - 25% w/o Loan
Effective WACC P5M 12%
0.042 0.0109 Operating Income 1,257,000
0.182 0.0001 Interest Expense -
0.051 0.0022 Taxable Income 1,257,000
0.077 0.0537 Income Tax 314,250
0.0669 6.69% Net Income 942,750
7% = Cost of Capital

0.042 0.0101
0.182 0.0002
0.051 0.0031
0.077 0.0539
0.0672 6.72%

Effective Cost W A C C Issuance Value

0.0520 0.021 19,298,438 0.401
0.1522 0.090 28,775,543 0.599
0.111 48,073,981

N P V - 20 yrs. Cost
- 7,850,443 14.0%

Effective
0.052 13,996,600 8.0%
11.6684 25,469,080

0.8065 29,589,500 6.4%

Difference

1,000,000

- 350,000 Tax Shield / Savings

650,000
0.065 Net Cost = 6.5%
(1 - Tax Rate)
W/ Loan

1,257,000
600,000 600,000
657,000
164,250 - 150,000 Tax Shield
492,750 450,000
0.09 Effective Cost

9%
 Increment
Par Market % Nominal Effective WACC
Debt 20,000 20,000.00 0.188 0.110 0.077 0.015
Debt 20,000 20,000.00 0.188 0.130 0.091 0.017
Common 45,000 51,136.36 0.482 3/25 0.036 0.045 0.022
R/E 15,000 15,000.00 0.141 0.036 0.036 0.005
100,000 106,136.36 1.000 0.059
 A 0.180
B 0.140
C 0.118
D 0.109
or 6% 0.137 Return Ave.