Are there any eco plastic

Answer 1

ECO PLASTICS COMPANY

Since its inception, Eco Plastics Company has been revolutionizing plastic and trying

to do its part to save the environment. Eco's founder, Marion Cosby, developed a

biodegradable plastic that her company is marketing to manufacturing companies

throughout the southeastern United States. After operating as a private company for

six years, Eco went public in 2009 and is listed on the Nasdaq Stock Exchange.

As the chief financial officer of a young company with lots of investment opportunities

Eco's CFO closely monitors the firm's cost of capital. The CFO keeps tabs on each of the

individual costs of Eco's three main financing sources: Long-term debt, preferred stock

and common stock. The target capital structure for ECO is given by the weights in the

following table:

Source of capital Weight

Long term debt 26%

Preferred Stock 16%

Common Stock Equity 60%

Total 100%

At the present time, Eco can raise debt by selling 20 year bonds with a $1,000 par value and a

10.40% annual coupon interest rate. Eco's corporate tax rate is 40% and its bonds

generally require an average discount of 63 dollars per bond and flotation costs of 24

dollars per bond when being sold. Eco's outstanding pref stock pays a 12% dividend and has a

123 dollars per share par value. The cost of issuing and selling additional preferred

stock is expected to be 19 dollars per share. Because Eco is a young firm that requires lots

of cash to grow it does not currently pay a dividend to common stockholders. To track the cost of

common stock the CFO uses CAPM. The CFO and the firm's investment advisors believe that

the appropriate risk free rate is 2% and that the market's expected return equals 12%

Using data from 2009 to 2012, Eco's CFO estimates the firm's beta to be 0.74 . Although

Eco's current target capital structure includes 12% preferred stock, the company is considering

using debt financing to retire the outstanding preferred stock, thus shifting their target

capital structure to 41% long term and 59% common stock equity.

If Eco shifts its capital mix from preferred stock to debt, its financial advisors

expect its beta to increase to 2.86

Calculate Eco's current after-tax cost of long term debt,cost of preferred stock,cost of common stock,current weighted average cost of capital (WACC).

And then assume that the debt financing costs do not change, what effect would a shift to a more

highly leveraged capital structure consisting of 41% long term debt, 0% preferred stock and

59% common stock have on the risk premium for Eco's common stock. What would be Eco's new

cost of common equity?

Answer 2

There are not many plastics that are environmentally friendly. It is important to use plastics that are made of recycled plastics, and to recycle as many plastics as possible, because this makes a much smaller impact on the environment.

Answer 3

No, because it is not biodegradable.