Assignment 2: Quantitative Exercises and Final Project 3: Government Securities

Part One: Quantitative Exercises

Barbow Enterprises, Inc., is considering an expansion in their operations. One of the first items they want to examine is their cost of capital. According to the accounting department, the following items and their respective costs have been identified:

• The cost of Common Equity: 15%
• The before tax cost of debt: 12%
• No Preferred stock

They have also calculated the marginal tax rate to be 40% and the stock sells at its book value.

Required:

Calculate Barbow’s after-tax weighted average cost of capital, using the data in the balance sheet above.

Deliverable:

By Tuesday, May 7, 2013, submit the completed assignment to the W4: Assignment 2 Dropbox. Use a Microsoft Excel spreadsheet that illustrates your calculations. You may use the formulas embedded in MicrosoftExcel and/or a financial calculator for these calculations.