CMA Study Group

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

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TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

Original Message:
Sent: 9/25/2022 11:59:00 AM
From: TIMUCIN ONER
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

its seems easy, you just need to sort the things, this called marginal cost of capital as i believe

first, 10% of cost of debt, it mentioned they raised debt of 40k, with cost of 12%, so if they need to issue more debt then the cost is 12% (the result is 10% * 12%), its not clear wehter its after or before tax, i will use whatever is available.
second, 40% of cost of new common stock is given also, 17% then ( the result is 40% * 17%)
third, 30% cost of retained earning (existing common stock) also given 13.5% (the result is 30%*13.5%)
forth, 20% of issue new preferred stock, we need to calculate the cost of new preferred stock ( dividends 30 / net proceeds 190) = 15.79% (the result is 20% * 15.79%)

so the magianl cost of capital 1.2%+6.8%+4.05%+3.158% = 15.208%

------------------------------
Adnan
------------------------------

Original Message:
Sent: 09-25-2022 11:59 AM
From: TIMUCIN ONER
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

Dear Adnan thank you so much

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

Original Message:
Sent: 09-26-2022 01:37 AM
From: Adnan Hamed
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

its seems easy, you just need to sort the things, this called marginal cost of capital as i believe

first, 10% of cost of debt, it mentioned they raised debt of 40k, with cost of 12%, so if they need to issue more debt then the cost is 12% (the result is 10% * 12%), its not clear wehter its after or before tax, i will use whatever is available.
second, 40% of cost of new common stock is given also, 17% then ( the result is 40% * 17%)
third, 30% cost of retained earning (existing common stock) also given 13.5% (the result is 30%*13.5%)
forth, 20% of issue new preferred stock, we need to calculate the cost of new preferred stock ( dividends 30 / net proceeds 190) = 15.79% (the result is 20% * 15.79%)

so the magianl cost of capital 1.2%+6.8%+4.05%+3.158% = 15.208%

------------------------------
Adnan

Original Message:
Sent: 09-25-2022 11:59 AM
From: TIMUCIN ONER
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

Is it 15.21%?

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MUHAMED AFSAL
KAKKANAD COCHIN 37
India
------------------------------

Original Message:
Sent: 09-25-2022 11:59 AM
From: TIMUCIN ONER
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

yes, if you rounded it

------------------------------
Adnan
------------------------------

Original Message:
Sent: 09-26-2022 02:54 AM
From: MUHAMED AFSAL
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Is it 15.21%?

------------------------------
MUHAMED AFSAL
KAKKANAD COCHIN 37
India

Original Message:
Sent: 09-25-2022 11:59 AM
From: TIMUCIN ONER
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

In my view, we should ignore the amount of money ,just need focus on the two ratios. The first is the capital structure ratio, the second is the cost of each of them, then multiply each other.
10%*12%+20%*15%(1+10%)+40%*17%+30%*13.5%=15.4%

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Yongkang Niu
Director/Manager
Beijing
China
------------------------------

Original Message:
Sent: 09-25-2022 11:59 AM
From: TIMUCIN ONER
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

Dear Yongkang thank you so much

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

Original Message:
Sent: 09-29-2022 10:10 PM
From: Yongkang Niu
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

In my view, we should ignore the amount of money ,just need focus on the two ratios. The first is the capital structure ratio, the second is the cost of each of them, then multiply each other.
10%*12%+20%*15%(1+10%)+40%*17%+30%*13.5%=15.4%

------------------------------
Yongkang Niu
Director/Manager
Beijing
China

Original Message:
Sent: 09-25-2022 11:59 AM
From: TIMUCIN ONER
Subject: PART 2 CORPORATE FINANCE WACC QUESTION

Dear Friends,

I am not sure about the answer, can anybody help me in solving this?

Thanks

Vivid, Inc., has determined that it needs $10,000,000 of funding to expand its operations into a foreign country. Its capital structure consists of 10% long-term debt, 20% preferred stock, 40% common stock, and 30% retained earnings. Vivid issued new debt and collected $40,000 of proceeds. The yearly interest rate is 12%. The cost of retained earnings is expected to be 13.5%, and the cost of new common stock is expected to be 17%. Vivid also can sell $200 par value preferred stock that pays a 15% dividend and has a $10 flotation cost. What is the weighted-average cost of new capital? (Round numbers to three decimal places, e.g., 0.1547 = 15.5%).

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------