14.1

14.3

(Cost of preferred stock) The preferred stock of Gator Industries sells for $34.26 and pays $2.79 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 473,000 more preferred shares just like the ones it currently has outstanding, it could sell them for $34.26 a share but would incur flotation costs of $2.77 per share. What are the flotation costs for issuing the preferred shares and how should this cost be incorporated into the NPV of the project being financed? The firm's cost of preferred stock financing is \%. (Round to two decimal places.) The flotation costs adjusted initial outlay for issuing the preferred shares are $ (Round to the nearest dollar.) How should this cost be incorporated into the NPV of the project being financed? (Select the best choice below.) A. We can account for flotation costs when calculating NPV by adjusting the project's discount rate. B. We can account for flotation costs when calculating NPV by adding them to the initial project outlay. C. We can account for flotation costs when calculating NPV by subtracting them from the initial project outlay. D. We can account for flotation, costs when calculating NPV by issuing more shares than initially anticipated. (Weighted average cost of capital) Bane Industries has a capital structure consisting of 60 percent common stock and 40 percent debt. The firm's investment banker has advised the firm that debt issued with a $1,000 par value, 8.4 percent coupon (interest paid semiannually), and maturing in 20 years can be sold today in the bond market for $1,101. Common stock of the firm is currently selling for $80.37 per share. The firm expects to pay a $1.98 dividend next year. Dividends have grown at the rate of 7.9 percent per year and are expected to continue to do so for the foreseeable future. What is Bane's average cost of capital where the firm faces a tax rate of 34 percent? a. The after-tax cost of debt is \%. (Round to two decimal places.) b. The cost of common equity is \%. (Round to two decimal places.) c. Bane's average cost of capital is \%. (Round to three decimal places.)