FIN 534 – Homework Set #4

Homework Set #4: Chapters 9, 10, & 11 (x2)Worth 100 points
Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above. (Solve in Excel Worksheet).unv
A. Bad Boys, Inc. is evaluating its cost of capital. Under consultation, Bad Boys, Inc. expects to issue new debt at par with a coupon rate of 8% and to issue new preferred stock with a $2.50 per share dividend at $25 a share. The common stock of Bad Boys, Inc. is currently selling for $20.00 a share. Bad Boys, Inc. expects to pay a dividend of $1.50 per share next year. An equity analyst foresees a growth in dividends at a rate of 5% per year. Bad Boys, Inc. marginal tax rate is 35%. If Bad Boys, Inc. raises capital using 45% debt, 5% preferred stock, and 50% common stock, what is Bad Boys cost of capital?

B. If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is Bad Boys cost of capital?

C. On page 457, your textbook details the term Cannibalization. In your own words, identify two corporations that have dealt with cannibalization and what steps were taken to overcome the cannibalization. Please provide any citations and references. Please be articulate in your responses.
Click here to view the grading rubric.

Points: 100

Homework Set 4: Chapters 9, 10, and 11

Criteria

Unacceptable Below 70% F

Fair
70-79% C

Proficient
80-89% B

Exemplary
90-100%A

1. If Bad Boys, Inc. raises capital using 45% debt, 5% preferred stock, and 50% common stock, what is Bad Boys cost of capital?
Weight: 30%

Did not submit or incompletely calculated Bad Boys, Inc.’s cost of capital.

Partially calculated Bad Boys, Inc.’s cost of capital.

Satisfactorily calculated Bad Boys, Inc.’s cost of capital.

Thoroughly calculated Bad Boys, Inc.’s cost of capital.

2. If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is Bad Boys cost of capital?
Weight: 30%

Did not submit or incompletely calculated Bad Boys, Inc.’s cost of capital.

Partially calculated Bad Boys, Inc.’s cost of capital.

Satisfactorily calculated Bad Boys, Inc.’s cost of capital.

Thoroughly calculated Bad Boys, Inc.’s cost of capital.

3. In your own words, identify two corporations that have dealt with cannibalization and what steps were taken to overcome the cannibalization. Please provide any citations and references. Please be articulate in your responses. Weight: 30%

Did not submit or incompletely identified two corporations that have dealt with cannibalization and what steps were taken to overcome cannibalization. Did not submit or incompletely provided citations and references.

Partially identified two corporations that have dealt with cannibalization and what steps were taken to overcome cannibalization. Partially provided citations and references.

Satisfactorily identified two corporations that have dealt with cannibalization and what steps were taken to overcome cannibalization. Satisfactorily provided citations and references.

Thoroughly identified two corporations that have dealt with cannibalization and what steps were taken to overcome cannibalization. Thoroughly provided citations and references.

4. Clarity, writing mechanics, and formatting requirements.
Weight: 10%

More than 6 errors present

5-6 errors present

3-4 errors present

0-2 errors present