Canyon Drilling, Inc. has just come under new management.

Canyon Drilling, Inc. has just come under new management. One of the first things the new management wants to accomplish is to identify its capital structure and the cost of additional funding, if needed.

According to the accounting department, the current balance sheet is accurate and reflects the financial structure of the company. They have also calculated the marginal tax rate to be 40%. The company’s beta is currently 1.15.

Your Chief Financial Officer, Marge, has also provided you the following information about the market and the company’s financials:

Company Specifics

Debt:

3,600 par value ($1,000) bonds outstanding. All have a 7% coupon, and will mature in 20 years. Market value is currently $1,050 and interest is paid once a year.

Equity:

Common Stock

The company has 40,000 shares of common stock outstanding, and has a market price of $50 per share. The stock last paid a dividend of $1.40 and had a constant growth of 5% per year.

Preferred Stock

The company has 7,500 shares of 5% preferred stock outstanding. All have $100 par value and are selling for $80 per share.

Floatation costs: Debt = 4%, Equity = 5%

Market Specifics

 Market risk premium = 7%   

Risk free rate = 4%

Return on the average stock = 11%

Tasks:

  • Assuming the same capital structure is to be maintained, what is the optimal capital structure for Canyon Drilling?
  • What is the component cost of capital for the firm?
  • Calculate Canyon Drilling’s after tax weighted average cost of capital, using the information above.

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more