## [answered] Module 13 Student's Model 12/04/16 ATLAS METALS COMPAN

Module 13 Student's Model 12/04/16 ATLAS METALS COMPANY

Establishing the Optimal Capital Budget

This case illustrates basic cost of capital calculations, the

construction of the marginal cost of capital and investment opportunity schedules, and the development of the optimal capital budget.

The model develops the firm's market value capital structure, component

costs, MCC schedule assuming two break points and available depreciation

generated funds. The model could easily be expanded to include more

break points in the MCC schedule, but most firms do not precisely define

their MCC break schedules past the retained earnings break point.

If you are using the student version of the model, some of the cells have been blanked out.

All of the formulas and inputs have been blanked out but not labels.

Before using the model, it is necessary to fill in the empty cells with the appropriate formulas.

Once this is done, the model is ready for use.

======= =============== =========== ======= ============== ===========

INPUT DATA:

KEY OUTPUT:

Short-Term Debt:

Total \$ amount

Marginal cost rate Market Value Capital Structure:

\$29,010,000

7.00% Long-Term Debt:

Total \$ amount

Par value

Years to maturity

Coupon rate

Current req return

Marginal cost rate:

Senior debt

Junior debt \$121,326,000

\$1,000

10

8.00%

9.00%

\$41,000,000 9.50%

11.80% % short-term debt

% long-term debt

% preferred stock

% common stock 7%

31%

9%

53% Break Points:

RE BP

RE+Dep BP \$0

\$0 Debt BP

Debt+Dept BP \$0

\$0 Component costs:

Short-term debt 0.00% Long-term debt:

First interval

Second interval 0.00%

0.00% Preferred Stock:

Total \$ amount

Par value

Dollar dividend \$36,010,000

\$100

\$12.69 Flotation costs

Common Stock:

Common stock

Retained earnings

Shares outstanding

Current price

New issue net price \$6.00 \$211,140,000

\$29,587,000

8,500,000

\$24.84

\$29.34 Preferred stock 0.00% Common stock:

Retained earnings

New common stock 0.00%

0.00% WACCs:

First interval

Second interval

Third interval Other Data:

Div. payout ratio

Dep. expense

Tax rate

1998 Earnings available to

com. stockholders

1998 EPS (est)

1988 EPS

growth (% previous) 0.00%

0.00%

0.00% ======= =============== =========== ======= ============== ===========

MODEL-GENERATED DATA:

Market Value Capital Structure:

# bonds outstanding

Type of Financing

Market Value

------------------------- ------------------Short-term debt

\$29,010,000

Long term debt

\$121,326,000

------------------Total debt

\$150,336,000

Preferred stock

Common equity

Total financing Retained Earnings Break Point:

RE BP =

RE BP inc. dep. \$36,010,000

\$211,140,000

------------------\$397,486,000

=========== %

---7%

31%

---38%

9%

53%

---100%

==== Debt BP =

Debt BP inc, dep.

Dividend Data:

Div. growth rate

End-of-year div.

Component Costs:

Short-term debt

Long-term debt:

First interval

Second interval

Preferred stock

Retained earnings

New common stock

WACCs:

First Interval:

ST debt, senior LT debt, retained earnings &amp; preferred stock

Component

Fraction

Cost

Short-term

Long-term

Preferred stock

Retained earn Product ----WACC = Ka =

Second Interval:

ST debt, Senior LT debt, external equity and preferred stock

Component

Fraction

Cost

Short-term

Long-term

Preferred stock

New CS Product ----WACC = Ka =

Third Interval:

ST debt, junior LT debt, external equity and preferred stock

Component

Fraction

Cost Product Short-term

Long-term

Preferred stock

New CS

----WACC = Ka =

======= =============== =========== ======= ============== ===========

END

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