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Solved: 2.. Funny Bear Company Has 40% Debt And 60% Equity, As Optimal Capital Structure. Their Stock Pric $60, Last Dividend Distributed Was $6.5, Growth Rate Is Expected As 7%, Corporate Tax Rate Is

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2.. Funny Bear Company has 40% debt and 60% equity, as optimal capital structure. Their stock pric $60, last dividend distrib



2.. Funny Bear Company has 40% debt and 60% equity, as optimal capital structure. Their stock pric $60, last dividend distributed was $6.5, growth rate is expected as 7%, corporate tax rate is 20% flotation costs are 10%. They can borrow at 10% rate up to $15 million, above which interest rate rise 12%. Their expected net income for next year is $27 million, and 45% will be distributed as dividends They have three projects under analysis: A has 17 million cost, 18% IRR, B has 30 million cost and IRR and C has 15 million cost and 14% IRR. Please calculate component costs, and break point(s). b. Please calculate WACC's What will be the optimal capital budget? a. c.

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a) After tax cost of debt upto $15 million = 10%*(1-20%) = 8.00% After tax cost of debt above $15 million = 12%*(1-20%) = 9.60% Cost of Retained earnings per constant dividend growth formula =

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