# pfa Problem Set #4 Pickerington Communications Inc. (PCI)

pfa

Pickerington Communications Inc. (PCI) has developed a powerful server that would be used for the company’s internet activities. The company has the following capital structure, which is considered optimal. Debt is 30%, preferred stock is 10%, and common stock is 60%. PCI’s tax rate is 25%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. The company paid a dividend of \$3.70 per share last year (D0), and its stock currently sells at a price of \$60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and PCI’s beta is 1.3.

The following information is available for managerial finance analysis:

Preferred stock: New preferred stock could be sold to the public at a price of \$100 per share, with a dividend of \$9. Flotation costs per share is \$5.

Debt: The company’s long-term debt has a yield to maturity of 9%.

Common stock: All common stock will be raised internally by reinvesting earnings.

a. Calculate the company’s after-tax cost of debt.

b. Calculate the cost of preferred stock.

c. Calculate the company’s cost of common stock using both CAPM method and the dividend growth method.

d. What is the company’s weighted average cost of capital (WACC)?

The company’s management is meeting today to discuss ways to minimize its cost of capital.

e. Identify
three factors that the management of PCI cannot control and
three factors that it can use to control its cost of capital.

Another company, Davis Industries is choosing between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one i.e., they are mutually exclusive investments. The cost of capital is 10%. The director of capital budgeting has provided the expected cash flows of the machines as follows:

 Expected Net Cash Flows Year Machine A Machine B 0 (\$50,000) (\$50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000

f. Calculate the payback period and profitability index for each machine.

g. Calculate net present value (NPV) and internal rate of return (IRR) for each machine.

h. Using the NPV technique, which machine should be recommended?

The director of capital budgeting has asked you to include risk analysis in your report. He wants you to explain risk in the context of capital budgeting, and how the risk can be analyzed.

i. Explain three types of risk that are relevant in capital budgeting decisions.

j. How is each of these risk types measured?

Order a Similar Paper and get 15% Discount on your First Order

## Related Questions

### COSTCO CASE STUDY PART 2 For this assignment, you will provide a 6–8 slide presentation for the executive team. The presentation will include the

COSTCO CASE STUDY PART 2 For this assignment, you will provide a 6–8 slide presentation for the executive team. The presentation will include the situational analysis, problem, alternatives, and marketing strategy recommendation. Follow the instructions below as you conduct your analysis. Include content from Part 1 Week 2 as it

### Books to Choose from: Isolated Incident The Sleeping Car Porter A Minor Chorus Sylvia Hamilton-Tender Letter to Authors Assignments Length: 4 – 6 pages

Books to Choose from: Isolated Incident The Sleeping Car Porter A Minor Chorus Sylvia Hamilton-Tender Letter to Authors Assignments Length: 4 – 6 pages (1000 – 1500 words).  Letters to Authors:  Using letter form, write a letter to an author on the course (one from each term). In the letter,

### Expanding an Executive Communication Report Proposal into a Formal ReportBackground: In today’s fast-paced business world, effective communication

Expanding an Executive Communication Report Proposal into a Formal Report Background: In today’s fast-paced business world, effective communication is essential for organizational success. Executives often rely on concise communication reports to make informed decisions. This assignment builds on the skills you developed in creating a 1-2 page executive communication report

### Electronic monitoring is often seen as “a prison without bars.” However, when it comes to juvenile electronic monitoring, it is not considered punishment

Electronic monitoring is often seen as “a prison without bars.” However, when it comes to juvenile electronic monitoring, it is not considered punishment but is seen as rehabilitative. Young people who would otherwise be detained are placed on electronic monitoring which can be akin to house arrest. Violations can include

### Two male juveniles and one female juvenile are out drinking together. At some point in the evening, the two young men rape the female juvenile.  She has

Two male juveniles and one female juvenile are out drinking together. At some point in the evening, the two young men rape the female juvenile.  She has no recollection of the event. Photos were taken of the female juvenile and were sent out on social media.  In the states in

### PLEASE FOLLOW THE RUBRIC ATTACHED IN FILES!!Directions and case study info attached in files

PLEASE FOLLOW THE RUBRIC ATTACHED IN FILES!! Directions and case study info attached in files

### There are three compliance templates posted in reading assignments this week. As a model, they do not contain the name of financial institution, unit, or a

There are three compliance templates posted in reading assignments this week. As a model, they do not contain the name of financial institution, unit, or a person responsible for the compliance reporting or in charge of the compliance policy and procedure. Please download each of the three templates  Please review

### Attached please read a legal case regarding credit card fraud. Please provide a summary of the case Please identify all legal statutes US DOJ applied to

Attached please read a legal case regarding credit card fraud.  Please provide a summary of the case Please identify all legal statutes US DOJ applied to prosecute the case Please highlight prevention techniques identified in the textbook or PPT lecture Please discuss which technique is most effective in this legal case

### Please answer the questions with at least 250 words 4 in text citations and 4 references 1.At what stage in a company’s life cycle is its structure most

Please answer the questions with at least 250 words 4 in text citations and 4 references 1.At what stage in a company’s life cycle is its structure most likely to begin driving its strategy? Why? How do business leaders align structure and strategy most effectively at this stage of the

### Ngăn ngừa trầy xước thấu kính thủy tinh Hướng dẫn toàn diệnThấu kính thủy tinh thường được sử dụng trong nhiều thiết bị quang học khác nhau nhưng chú

Ngăn ngừa trầy xước thấu kính thủy tinh Hướng dẫn toàn diện Thấu kính thủy tinh thường được sử dụng trong nhiều thiết bị quang học khác nhau nhưng chúng dễ bị trầy xước và có thể ảnh hưởng đến hiệu suất của chúng. Hiểu nguyên nhân của những

### Show the process of solving each problem. The answer is already provided.   Chapter 14:  Work, Energy, and Power · Section: Problems · 14-56 A

Show the process of solving each problem. The answer is already provided.    Chapter 14:  Work, Energy, and Power · Section: Problems · 14-56 A gear with a mass moment of inertia of 0.45 kg⋅m2 has a kinetic energy of rotation of 21 joules. What is its speed of rotation in

### Show the process of solving each problem. The answer is already provided. Plane Motion If a rigid body moves with both translational and

Show the process of solving each problem. The answer is already provided.  Plane Motion If a rigid body moves with both translational and rotational motion, it is said to be in general plane motion. To analyze general plane motion, equations describing the translation of the center of gravity and the

### Show the process of solving each problem. The answer is already provided.  Review Assignment Kinetics Kinetics, the study of unbalanced forces

Show the process of solving each problem. The answer is already provided.   Review Assignment Kinetics Kinetics, the study of unbalanced forces causing motion, can be analyzed by three methods: inertia force or torque (dynamic equilibrium), work and energy, and impulse and momentum. Consider the following as you complete your assignment:

### Write a research  in the form of an argumentative on a topic of your choosing that is explicitly or implicitly related to race and public policy

Write a research  in the form of an argumentative on a topic of your choosing that is explicitly or implicitly related to race and public policy

### Please answer the questions with at least 250 words 4 in text citations and 4 references 1.At what stage in a company’s life cycle is its structure most

Please answer the questions with at least 250 words 4 in text citations and 4 references 1.At what stage in a company’s life cycle is its structure most likely to begin driving its strategy? Why? How do business leaders align structure and strategy most effectively at this stage of the

### I am looking for someone to help me solve the attached question image1.png

I am looking for someone to help me solve the attached question  image1.png

### write a speech about this topic for civilization’s class   WRITE IT AS FAST AS YOU CAN AND USE THE ARTICLE I HAVE UPLOADED The Cold War. (1945-1991) The

write a speech about this topic for civilization’s class   WRITE IT AS FAST AS YOU CAN AND USE THE ARTICLE I HAVE UPLOADED The Cold War. (1945-1991) The Cold War was reflected in culture through music, movies, books, television, and other media, as well as sports, social beliefs, and behavior.

### Give an example of a study that would aid your work or findings by testing a hypothesis. Give an idea of the variable whose value you

Give an example of a study that would aid your work or findings by testing a hypothesis. Give an idea of the variable whose value you think would be tested and how you would go about estimating its value. If the null hypothesis is rejected, the finding could alter your