Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

-22 COST OF CAPITAL Coleman Technologies is considering a major expansion program that has hehe proposed by the company's information technology group. Before proceeding with

image text in transcribed

image text in transcribed

-22 COST OF CAPITAL Coleman Technologies is considering a major expansion program that has hehe proposed by the company's information technology group. Before proceeding with the expansion, the vice president. Your first task is to estimate Coleman's cost of capital. Lehman has provided you with the following data, which he believes may be relevant to your task. The firm's tax rate is 25%. The current price of Coleman's 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity, is $1,153.72. Coleman does not use short-term, interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm's 10%, $100.00 par value, quarterly dividend, perpetual preferred stock is $111.10. . Coleman's common stock is currently selling for $50.00 per share. Its last dividend (D) was $4.19, and dividends are expected to grow at a constant annual rate of 5% in the foreseeable future. Coleman's beta is 1.2, the yield on T-bonds is 7%, and the market risk premium is estimated to be 6%. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 4%. Coleman's target capital structure is 30% debt, 10% preferred stock, and 60% common equity. e. f. What is the estimated cost of common equity using the DCF approach? What is the bond-yield-plus-risk-premium estimate for Coleman's cost of common equity

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Equity Market Anomalies

Authors: Leonard Zacks

1st Edition

0470905905, 978-0470905906

More Books

Students also viewed these Finance questions

Question

gpt 1 9 . .

Answered: 1 week ago