Finance - Updated new question

Grundlestiltskin

So I have a finance quiz tomorrow, and I've been told I need to be able to calculate MIRRs (modified internal rates of return). Problem is, my TI-83 only has options to solve for NPV and IRR. What do I do?

Pheezer

What calculator did your professor suggest you to buy?

How likely is it that you can buy that calculator and learn to use it in time for your exam?

Failing that, how likely is it that your textbook explains that formula and how/when to apply it, and how likely are you to be able to memorize and understand it?

Kakodaimonos

You can calculate MIRR by hand

MIRR=(POW(FVCF/I)(1/n))-1

MIRR - modified internal rate of return

FVCF - future value of a cash flow

I - Investment

n - number of periods of the cash flow

That's the Nth root up there, not SQRT to the Nth power.

http://en.wikipedia.org/wiki/Modified_internal_rate_of_return

Grundlestiltskin

The book had it, for some reason I thought solving for the MIRR would involve random guesses like IRR.

Thanks for the help.

Grundlestiltskin

New question, regarding WACC calculation and calculating the cost of equity.

If retained earnings are used for financing, the weighted portion of this cost is (weight of equity)(cost of retained earnings). If new common stock is issued, the cost is adjusted based on the flotation cost of new equity. My question is, if you issue ANY new stock, is the cost of equity the cost of issuing new stock? or do you have to break down We*Re into percentage of retained earnings and its cost and percentage of new stock and its cost?

I realize the phrasing could probably be more clear.

Edit: To clarify, let's say a company needs to raise $125 million through equity and is retaining $100 million. Will the cost of equity be the cost of issuing the $25 million of new equity, or will it be 25/125 new equity cost and 100/125 retained earnings cost?

Grundlestiltskin

Here is the actual question..in question

Granite Electric Company (GEC) uses only debt and equity in its capital structure. It can borrow unlimited amounts at an interest rate of 10% so long as it finances at its target capital structure, which calls for 40 % debt and 60 % common equity. Its last dividend was $2.20; its expected constant growth rate is 6%; its stock sells on the NYSE at a price of $30; and new common stock could be sold to net the company $25 per share after flotation costs. GEC's tax rate is 40%, and it expects to have $100 million of retained earnings this year. GEC has two projects available: Project A has a cost of $200 million and a rate of return of 13 percent, while Project B has a cost of $125 million and a rate of return of 12 percent. All of the company's potential projects are equally risky.

2. (5 points) What is GEC's cost of equity from newly issued common stock?

Answer:_____________%







3. (10 points) Assume that GEC needs to raise $325 million in new capital. What is GEC's marginal cost of capital (WACC) for evaluating any projects that might arise during the year that would take the total capital needed above $ 325 million?

Answer: The marginal cost of capital is ______________%