Before-tax Required Return
- Bond interest payments: $40
- Preferred share dividends: $14
- Net income available to common: $115
- Investment in working capital: $30
- Investment in fixed capital: $100
- Net new borrowing: $30
- Depreciation: $50
- Tax rate: 20%
(a) Compute the firm’s weighted average cost of capital. (10 marks)
(b) Compute the current FCFE for SP Shipping. (5 marks)
(c) Compute the current FCFF for SP Shipping. (5 marks)
(d) Discuss why the value of SP Shipping’s equity obtained by the single stage FCFE and single stage FCFF may be different. (5 marks)
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