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During the last few years, Harry Davis industry has been too constructed by the high cost

of capital to make many capital investment. Recently though, capital cost have been

Declining, and the company has decided to look seriously at a major expansion program

Proposed by the marketing department. Assumed that you are an assistant to Leigh J.,

The financial VP. Your first task is to estimate Harry Davis cost of capital. Jones

Has provided you with the following data, which she believes may be relevant to your task.

A. The firms tax rate is 40%

B. The current price of Harry Davis 12% coupon, semiannual payment, noncallable Bonds with 15yrs reminding to maturity is $1,153. Harry Davis does not use Short term interest bearing debt on permanent basis. New bonds would be

Privately placed with no floatation cost.

C. The current price of the firms 10%, $100 par value, quarterly dividend, perpetual

Preferred stock is $116. Harry Davis would incur floatation cost equal to 5% of

The proceeds on a new issue.

During the last few years, Harry Davis industry has been too constructed by the high cost

of capital to make many capital investment. Recently though, capital cost have been

Declining, and the company has decided to look seriously at a major expansion program

Proposed by the marketing department. Assumed that you are an assistant to Leigh J.,

The financial VP. Your first task is to estimate Harry Davis cost of capital. Jones

Has provided you with the following data, which she believes may be relevant to your task.

A. The firms tax rate is 40%

B. The current price of Harry Davis 12% coupon, semiannual payment, noncallable

Bonds with 15yrs reminding to maturity is $1,153. Harry Davis does not use

Short term interest bearing debt on permanent basis. New bonds would be

Privately placed with no floatation cost.

C. The current price of the firms 10%, $100 par value, quarterly dividend, perpetual

Preferred stock is $116. Harry Davis would incur floatation cost equal to 5% of

The proceeds on a new issue.

D. Harrys common stock is currently selling at $50 per share. Its last divided

(D o) was $3.12, and dividends are expected to grow constant rate of 5.8% in

The foreseeable future. Harry Davis beta is 1.2, the yield on T-bonds is 5.6% and

The market risk premium is estimated to be 6%. For the own-bond-yield-plus-

Judgemental-risk-primium approach, the firm uses 3.2% risk premium.

E. Harry Davis target capital structure is 30% long term debt, 10% preferred stock,

And 60% common equity.

During the last few years, Harry Davis industry has been too constructed by the high cost of capital to make many capital investment. Recently though, capital cost have been Declining, and the company has decided to look seriously at a major expansion program Proposed by the marketing department. Assumed that you are an assistant to Leigh J., The financial VP. Your first task is to estimate Harry Davis cost of capital. Jones Has provided you with the following data, which she believes may be relevant to your task. A. The firms tax rate is 40% B. The current price of Harry Davis 12% coupon, semiannual payment, noncallable Bonds with 15yrs reminding to maturity is $1,153. Harry Davis does not use Short term interest bearing debt on permanent basis. New bonds would be Privately placed with no floatation cost. C. The current price of the firms 10%, $100 par value, quarterly dividend, perpetual Preferred stock is $116. Harry Davis would incur floatation cost equal to 5% of The proceeds on a new issue. During the last few years, Harry Davis industry has been too constructed by the high cost of capital to make many capital investment. Recently though, capital cost have been Declining, and the company has decided to look seriously at a major expansion program Proposed by the marketing department. Assumed that you are an assistant to Leigh J., The financial VP. Your first task is to estimate Harry Davis cost of capital. Jones Has provided you with the following data, which she believes may be relevant to your task. A. The firms tax rate is 40% B. The current price of Harry Davis 12% coupon, semiannual payment, noncallable Bonds with 15yrs reminding to maturity is $1,153. Harry Davis does not use Short term interest bearing debt on permanent basis. New bonds would be Privately placed with no floatation cost. C. The current price of the firms 10%, $100 par value, quarterly dividend, perpetual Preferred stock is $116. Harry Davis would incur floatation cost equal to 5% of The proceeds on a new issue. D. Harry's common stock is currently selling at $50 per share. It's last divided (Do) was $3.12, and dividends are expected to grow constant rate of 5.8% in The foreseeable future. Harry Davis beta is 1.2, the yield on T-bonds is 5.6% and The market risk premium is estimated to be 6%. For the own-bond-yield-plus- Judgemental-risk-primium approach, the firm uses 3.2% risk premium. E. Harry Davis target capital structure is 30% long term debt, 10% preferred stock, And 60% common equity

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