Quantitative Exercises

Quantitative Exercises

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 Barbow’s after-tax weighted average cost of capital, using the data in the balance sheet above.

 

Part Two:  Final Project 3: Government Securities

In this part of your Final Project, you will research and analyze current information (that is, within the past two months) on government securities.

Step 1: Go to a financial Web site to do your research. The following are three suggested sites, but you may use others. Be sure to cite your sources!

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