Directions: Answer the following questions in 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.
- 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. The 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, Inc.’s cost of capital?
- If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is Bad Boys, Inc.’s cost of capital?
Grading for this assignment will be based on answer quality, logic/organization of the paper, and language and writing skills.
Name: Homework Set #4
Description: Grading for this assignment will be based on answer quality, logic/organization of the paper, and language and writing skills, using the following rubric.
Unacceptable Fair Proficient Exemplary 1. If Bad Boys, Inc. raises capital using 45% debt, 5% preferred stock, and 50% common stock,
what is Bad Boys cost of capital?
Points Range: 0 (0%) – 23.29 (31.05%)
Did not submit or incompletely calculated Bad Boys, Inc.’s cost of capital.
Points Range: 23.62 (31.5%) – 26.66 (35.55%)
Partially calculated Bad Boys, Inc.’s cost of capital.
Points Range: 27 (36%) – 30.04 (40.05%)
Satisfactorily calculated Bad Boys, Inc.’s cost of capital.
Points Range: 30.38 (40.5%) – 33.75 (45%)
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?
Points Range: 0 (0%) – 23.29 (31.05%)
Did not submit or incompletely calculated Bad Boys, Inc.’s cost of capital.
Points Range: 23.62 (31.5%) – 26.66 (35.55%)
Partially calculated Bad Boys, Inc.’s cost of capital.
Points Range: 27 (36%) – 30.04 (40.05%)
Satisfactorily calculated Bad Boys, Inc.’s cost of capital.
Points Range: 30.38 (40.5%) – 33.75 (45%)
Thoroughly calculated Bad Boys, Inc.’s cost of capital.
4. Clarity, writing mechanics, and formatting requirements
Points Range: 0 (0%) – 5.18 (6.9%)
More than 6 errors present
Points Range: 5.25 (7%) – 5.92 (7.9%)
5-6 errors present
Points Range: 6 (8%) – 6.68 (8.9%)
3-4 errors present
Points Range: 6.75 (9%) – 7.5 (10%)
0-2 errors present