Question
1. A company needs to raise capital and is open for all option to avail. For Bond they can go 8%, 20 years of Bond
1. A company needs to raise capital and is open for all option to avail. For Bond they can go 8%, 20 years of Bond with net proceeds of $940 for $1000. At this time there stock is trading at $100, for preferred they need to pay $13 dividend but they also have $4 of Flotation Cost. For Common Stock option they are willing to pay $4 dividend with constant growth rate of 6%.They are also open to have new common stock issue in the market with floatation cost of 10%. Please calculate before and after tax costs with tax rates of 40%, associated with all these options. a. Bond b. Preferred Stock c. Additional Common equity d. New Common equity 2. Now you have calculated costs associated with all four options for all options use after tax cost to calculate WACC in all these cases. a. Bond (0.4), Preferred Stock (0.1), Additional Common Equity (0.5) b. Bond(0.3), Preferred Stock(0.2), New Common Equity (0.5) c. Bond(0.5), Additional (0.25) and New Common Equity (0.25) d. Bond (0.45), New Common Equity (0.55)
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