Last year Gator Getters, Inc. had $50 million in total assets. Management desires to increase its plant and equipment during the coming year by $12 million

Last year Gator Getters, Inc. had $50 million in total assets. Management desires to increase its plant and equipment during the coming year by $12 million. The company plans to finance 40% of the expansion with debt and the remaining 60% with equity capital. Bond financing will be at a 9% rate and will be sold at its par value. Common stock is currently selling for $50 per share and flotation costs for new common stock will amount to $5 per share. The expected dividend next year for Gator is $2.50. Furthermore, dividends are expected to grow at a 6% rate far into the future. The marginal corporate tax rate is 34%. Internal funding is available from additions to retained earnings is $4, 000,000.

A. What amount of new common stock must be sold if the existing capital structure is to be maintained? Hint: Information you need:  You need existing structure, tax rate, internal funding through retained earnings Existing capital structure: $50 million in total assets

B. Calculate the weighted marginal cost of capital at an investment level of $12 million. Hint: Information you need: Bond financing rate, tax rate, expected dividend, currently selling common stock price, flotation costs and expected dividend growth rate
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