This is a financial management question: A firm raised $100 million from the bond market today.

This is a financial management question:

A firm raised $100 million from the bond market today.  What will be the interest expense for the $100 million debt in the projected annual income statement of the firm for next year (1 year from today)?

The firm has the following capital structure

Debt 25%

Preferred Stock 15%

Common Equity 60%

The firm is set to grow at a constant rate and pays a dividend of $3.60 per share for its common stock holders.  The common stock sells at $54 per share.  The firms Earnings Per Share was $8.40 in June 2001 and has grown to $16.80 this year (June 2010).  The firms corporate tax rate is 40%.  Debt can be sold to investors who will require $120 coupon interest per year per bond.

The coupon rate for a bond is equal to its yield to maturity.

Order the answer to view it

Assignment Solutions
Assignment Solutions