1.

Milestone Corp is interested is measuring the cost of pach

specific type of capital as well as the weighted average cost of
capital:
Tax Rate 40%

Sources of Capital Weight

Long term debt 35%
Preferred Stock 12%
Common Stock Equity 53%
Debt : Milstone can raise debt by selling low for value 6.5%
Coupon interest rate, 10 year bonds an which annual interest
payment will be made. To Sell the issue, an average discount at
$20/bonds need to be given. There is an also created floation
cost of 2% of par value.
Preferred stock can be sold under the following term: The
security has a par value of $100 per share. The annual dividend
rate is 6% of the par value, and the floation cost is expected to
be $4 per share. The preferred stock is expected to sell for $120
before cost consideration.
Common Stock : The current price of milestone’s common stock is
$35 per share. Tho cash dividend is expected to be $3.25 per
share next Year. The firm dividend have grown at an annual rate
of 5%, and it is expected that the dividend will continue at this
rate for the foresserable future. The floation cost are expected
to be approximately $2 per share. Milestone can sell new common
stock under these term.

2. Milestone expect to received £ 750.000 from a credit customer in

the Europe in 6 months time. The spot exchange is £ 2349 per $1
and the 6 month forward rate is € 2412 per $1
Deposit Rate Borrowing Rate
Euros 4 % pa 8% Pa
Dollars 2 % pa 7,5 %
1. What could milestone do to reduce the side of the euro value
dropping relative to the dollar before the £ 750000 is receduse
a. Deposit 750.000 immedialy
b. Borrowing dollar to exchange £ 750.000
c. Enter into a forward contract to sell £ 750.000 in 6 months
d. Matching payments and receipts to the value of £ 750.000
2. What is the dolar value of forward market hedge?
3. If milestone .. a money markt hedge , what would be the %
borrowing rate for the period?
4. Which method will milestone most likely to choose? Explain
3. Milestone most recently sold 100.000 units at $ 7,5 each, its
variable operating cost are $ 3 per unit and its FOH are 250.000.
annual interest change total $ 80.000 and the firms has 8.000
shares of $ 5 ( annual dividend ) p/s outstanding it currently
has 20.000 shares of common stock. Outstanding tax rate is
assumed to be 40%
a. At what level od sales ( in units ) would the firm bep?
b. Calculate eps
c. Calculate DOL , Comment
d. Calculate DFL, Commet