?Coogly Company is
attempting to identify its weighted average cost of capital for the coming year
and has hired you to answer some questions they have about the process. They
have asked you to present this information in a PowerPoint presentation to the
company’s management team. The company would like for you to keep your
presentation to approximately 10 slides and use the notes section in PowerPoint
to clarify your point. Your presentation should address the following questions
and offer a final recommendation toCoogly. Make sure you support your answers and clearly explain
the advantages and disadvantages of utilizing the weighted average cost of
capital methodology. Include at least one graph or chart in your
presentation.
?
?Company
Information
?
?The capital structure
for the firm will be maintained and is now 10% preferred stock, 30% debt, and
60% new common stock. No retained earnings are available. The
marginal tax rate for the firm is 40%.
?
?Coogly has outstanding
preferred stock that pays a dividend of $4 per share and sells for $82 per
share, with a floatation cost of $6 per share. What is the component cost forCoogly’s preferred stock?
What are the advantages and disadvantages of using preferred stock in the
capital structure?
?If the company issues
new common stock, it will sell for $50 per share with a floatation cost of $9
per share. The last dividend paid was $3.80 and this dividend is expected to
grow at a rate of 7% for the foreseeable future. What is the cost of new equity
to the firm? What are the advantages and disadvantages of issuing new equity in
the capital structure?
?The company will use
new bonds for any capital project, according to the capital structure. These
bonds will have a market and par value of $1000, with a coupon rate of 6% and a
floatation cost of 7%. The bonds will mature in 20 years and no other debt will
be used for any new investments. What is the cost of new debt? What are the
advantages and disadvantages of issuing new debt in the capital structure?
?Given the component
costs identified above and the capital structure for the firm, what is the
weighted average cost of capital forCoogly? What are the advantages and disadvantages of using
this method in the capital budgeting process?
?Assignment
2 Grading Criteria
?Maximum
Points
?Correctly calculated
the cost of issuing preferred stock and explained the advantages and
disadvantages of using preferred stock in the capital structure.
?20
?Correctly calculated
the cost of issuing new equity and explained the advantages and disadvantages
of issuing new equity in the capital structure.
?20
?Correctly calculated
the cost of new debt and explained the advantages and disadvantages of issuing
new debt in the capital structure.
?20
?Correctly calculated
the weighted average cost of capital for the firm and explained the advantages
and disadvantages of the using this method in the capital budgeting process.
?20
?Prepared an
informative and accurate PowerPoint presentation which summarized the relevant
and important aspects of the findings. At least one chart or graph was included
and the notes section was used to clarify the talking points.
?10
?Written in a clear,
concise, and organized manner; demonstrated ethical scholarship in accurate
representation and attribution of sources; displayed accurate spelling,
grammar, and punctuation.
?10
?Total:
?100
