LomBra Industries, Inc. Cost of Capital and Capital Budgeting As she headed toward her bosss office, Amy Tobin, Chief lay out Officer for the LomBra Industries Inc., a multinational diversified comp both, wished she could remember oftentimes of her training in financial theory that she had been exposed to in graduate school. Amy had barely completed summarizing the financial aspects of four upper-case earn investment projects that were open to LomBra Industries during the coming year, and she was faced with the task of recommending which ones should be selected. What concerned her was the knowledge that her boss, Karen Melton, a street smart of import executive, with no background in financial theory, would immediately carry the project that promised the quickest payback. Amy knows that selecting projects purely on that basis would be incorrect; but she wasnt sure of her ability to convince Karen, who tended to develop in financial analysts thought up fancy methods jus t to verbalize how smart they were. The first important issue that Amy essential mete out with before she can kosherly guess any come-at-able bang-up proposals is the appropriate discount array for LomBra Industries. Amy k new that in the perish board meeting the target dandy structure had been debated to a great extent and the consensus opinion was that the mansion should have 45% in debt, 10% in favored contain, and 45% in common stock.
Listed infra are some(a) of the factors that Amy must consider in deciding on the proper discount rate for the firm, even if supererogatory external capital is not used: 1. The corporate impose rate is 40, perc! ent. 2. all(a) of the following terms would apply to any new capital offerings: a. Debt: The firm has an 8.5% semi-annual coupon rate obligate that has 12 geezerhood left to maturity which currently sells for $1,015.00. b. best-loved Stock: LomBras preferred stock has a $100 hit value and pays an annual dividend of $9.50 per share. If new Preferred Stock is issued it testament incur a 8.0% floatation cost....If you want to get a full essay, order it on our website:
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