On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to rai

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On January 1, the total market value of the Tysseland Company
was $60 million. During the year, the company plans to raise and
invest $15 million in new projects. The firm's present market value
capital structure, shown below, is considered to be optimal. Assume
that there is no short-term debt.
New bonds will have an 9% coupon rate, and they will be sold at
par. Common stock is currently selling at $30 a share. The
stockholders' required rate of return is estimated to be 12%,
consisting of a dividend yield of 4% and an expected constant
growth rate of 8%. (The next expected dividend is $1.20, so
$1.20/$30 = 4%.) The marginal corporate tax rate is 40%.
The data has been collected in the Microsoft Excel Online file
below. Open the spreadsheet and perform the required analysis to
answer the question below.
In order to maintain the present capital structure, how much of
the new investment must be financed by common equity? Enter your
answer in dollars. For example, $1.2 million should be entered as
$1200000. Round your answer to the nearest dollar. Do not round
intermediate calculations.
Assuming there is sufficient cash flow such that Tysseland can
maintain its target capital structure without issuing additional
shares of equity, what is its WACC? Round your answer to two
decimal places. Do not round intermediate calculations.
Suppose now that there is not enough internal cash flow and the
firm must issue new shares of stock. Qualitatively speaking, what
will happen to the WACC?
I. rs and the WACC will
decrease due to the flotation costs of new equity.
II. rs will increase and the
WACC will decrease due to the flotation costs of new equity.
III. rs will decrease and the
WACC will increase due to the flotation costs of new equity.
IV. rs and the WACC will not
be affected by flotation costs of new equity.
V. rs and the WACC will
increase due to the flotation costs of new equity.