Assignment 2: Quantitative Exercises and Final Project 3: Government Securities
Part One: Quantitative Exercises
Barbow Enterprises, Inc., is considering an expansion in their operations. One of the first items they want to examine is their cost of capital. According to the accounting department, the following items and their respective costs have been identified:
The cost of Common Equity: 15%
The before tax cost of debt: 12%
No Preferred stock
They have also calculated the marginal tax rate to be 40% and the stock sells at its book value.
Barbow Enterprises Inc.
Balance Sheet
Assets
Liabilities and Owners’ Equity
Cash
$240
Long Term Debt
$2,304
Accounts Receivable
480
Equity
3,456
Inventories
720
Net P&E
4,320
Total Assets
$5,760
Total Liabilities and owners’ Equity
$5,760
Required:
Calculate Barbows after-tax weighted average cost of capital, using the data in the balance sheet above.
Deliverable:
By Tuesday, May 7, 2013, submit the completed assignment to the W4: Assignment 2 Dropbox. Use a Microsoft Excel spreadsheet that illustrates your calculations. You may use the formulas embedded in MicrosoftExcel and/or a financial calculator for these calculations.