Capital Budgeting: Lombra Industries

LomBra Industries, Inc. Cost of Capital and Capital Budgeting As she headed toward her bosss office, Amy Tobin, Chief splinter Officer for the LomBra Industries Inc., a multinational diversified comp both, wished she could remember a lot of her training in financial theory that she had been exposed to in graduate school. Amy had comely completed summarizing the financial aspects of four upper-case garner investment projects that were open to LomBra Industries during the coming year, and she was faced with the task of recommending which ones should be selected. What concerned her was the knowledge that her boss, Karen Melton, a street smart lead executive, with no background in financial theory, would immediately lead the project that promised the quickest payback. Amy knows that selecting projects purely on that basis would be incorrect; but she wasnt sure of her ability to convince Karen, who tended to simulate in financial analysts thought up fancy methods just to v erbalize how smart they were. The first important issue that Amy mustiness mete out with before she can veraciously assess any come-at-able big(p) proposals is the appropriate discount respect for LomBra Industries. Amy k unseasoned that in the perish board meeting the target upper-case letter structure had been debated to a great extent and the consensus opinion was that the staunch should have 45% in debt, 10% in preferent cable, and 45% in common stock.

Listed infra are several(prenominal) of the factors that Amy must consider in deciding on the proper discount rate for the firm, even if supererogatory external chief ci ty is not used: 1. The corporate impos! e rate is 40, percent. 2. completely of the following terms would apply to any new capital offerings: a. Debt: The firm has an 8.5% semi-annual coupon rate obligate that has 12 years left to maturity which currently sells for $1,015.00. b. best-loved Stock: LomBras preferred stock has a $100 hit value and pays an annual dividend of $9.50 per share. If new Preferred Stock is issued it testament incur a 8.0% floatation cost....If you want to get a full essay, order it on our website: BestEssayCheap.com

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