Question

I_e=existing debt * its rate

I_d= new debt * its rate +Ie

N_d= existing shares of common stock

N_e=expansion/net price + Nd

1. Using the following information, calculate I_d:

Format your answer in millions to the hundredths place. 14,516,000 would be entered as 14.52

The firm needs to raise $14m which it can do with debt at 6.50% or stock at $179 per share.

Existing securities:

Security	Amount	Rate or Dividend
Bonds	$373m	5.05%.
Stock	682m	$0.78 per share

a.

Using the following information, calculate N_d:

Format your answer in millions to the hundredths place. 14,516,000 would be entered as 14.52

The firm needs to raise $13m which it can do with debt at 7.44% or stock at $125 per share.

Existing securities:

Security	Amount	Rate or Dividend
Bonds	$365m	4.07%.
Stock	639m	$0.89 per share

b.

Using the following information, calculate I_e:

Format your answer in millions to the hundredths place. 14,516,000 would be entered as 14.52

The firm needs to raise $16m which it can do with debt at 6.06% or stock at $149 per share.

Existing securities:

Security	Amount	Rate or Dividend
Bonds	$372m	5.95%.
Stock	731m	$0.67 per share

c.

Using the following information, calculate N_e:

Format your answer in millions to the hundredths place. 14,516,000 would be entered as 14.52

The firm needs to raise $17m which it can do with debt at 7.72% or stock at $117 per share.

Existing securities:

Security	Amount	Rate or Dividend
Bonds	$416m	4.70%.
Stock	736m	$0.93 per share

Answer 1

Required 1

le = existing debt * its rate = $373M * 5.05% = 18.84

Id = new debt * its rate +Ie = $14M * 6.50% + 18.84 = 19.75

Required a.

Nd = existing shares of common stock

= 639M / 125

= 5.11

Required b.

Ie = existing debt * its rate

= 372m * 5.95%

= 22.13

Required c

Nd= existing shares of common stock = 736m /117 = 6.29

Ne = expansion/net price + Nd

= 17m / 117 + 6.29

= 6.44

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