Trois-Rivieres Manufacturing has 10,000 bonds (face value of $1,000 each) with a 10 percent coupon maturing in

Question:

Trois-Rivieres Manufacturing has 10,000 bonds (face value of $1,000 each) with a 10 percent coupon maturing in 8 years. Its preferred (100,000 shares) have a face value of $25 and pay a 7.5 percent dividend, and it has 600,000 common shares outstanding. Retained earnings are reported at $4,500,000.
During the last five years, Trois-Rivieres Manufacturing has enjoyed steady growth, with common stock dividends growing from $0.80 to $1.23 Oust recently paid). The common share price currently trades at $15.00. If new shares were issued at $15.00, they would require flotation expenses of 7 percent of proceeds. The preferred shares currently trade at $26.50, and any new issue would require flotation expenses of 5 percent of price to investors. The bonds currently pay interest semiannually and are trading at a price that yields nominal 12 percent annual rate (12.36 effective annual rate). Flotation costs of new debt would be 4 percent of proceeds. Trois-Rivieres' tax rate is 38 percent, and equity financing would require a new share issue.
Calculate the weighted average cost of capital of Trois-Rivieres Manufacturing.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

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