The following data applies to Crunch Cookie Company: Income Statement Sales: $1,000,000 Operating…

The following data applies to Crunch Cookie Company: Income Statement Sales: $1,000,000 Operating…

The following data applies to Crunch Cookie Company:

Income Statement

Sales: $1,000,000

Operating Expenses: (626,000)

EBIT: 374,000

Interest: (24,000)

EBT: 350,000

Taxes @40%: (140,000)

Net Income: 210,000

Year Net Income Per Share

1988 $210,000 3.50

1987 195,000 3.25

1986 180,000 3.00

1985 167,000 2.75

1984 155,000 2.60

1983 143,500 2.40

1982 132,500 2.20

Assets

Current $300,000

Fixed $600,000

Total $900,000

Liabilities and Owners Equity

Bonds ($1000 par) $300,000

Common Stock ($20par) $300,000

Retained Earnings $300,000

Total $900,000

Bond Price $687 Common Stock Price $54

Common Stock costs $5 per share to issue, floatation cost for bonds is 5% and the bonds have ten years to maturity. Assume the growth rate in earnings and dividends to be constant over time and the payout rate to be the same as in the previous year.

A.

What is the expected earnings and expected retained earnings for 1989?

B.

What is Crunch s weighted average cost of capital with retained earnings? Without retained earnings?

C.

At what level of total financing will the WACC increase?

D.

In order to estimate the weighted average cost of capital we need to make certain assumptions. What are these assumptions and explain why we need to make them

The following data applies to Crunch Cookie Company: Income Statement Sales: $1,000,000 Operating…

TALK TO SUPPORT VIA LIVE CHAT TO SEE THIS ANSWER AT $ 10 ONLY