Answered step by step
Verified Expert Solution
Question
1 Approved Answer
4. Humble Manufacturing Is interested in measuring its overall cost of capital. The firm is in 40% tax bracket Debt: The firm can raise an
4. Humble Manufacturing Is interested in measuring its overall cost of capital. The firm is in 40% tax bracket Debt: The firm can raise an unlimited amount of debt by selling $1,000, 10 percent, 10 year bonds on which annual interest payments will be made. To sell the issue, an average discount of $30 per bond would have to be given. The firm must also pay flotation costs of $20 per bond. Preferred stock: The firm can sell 11 percent preferred stock at its $100 per share par value. The cost of issuing and selling the stock is expected to be 54 per share. Common stock: The firm's common stock is currently selling for $80 per share. The firm expects to pay cash dividend of 56 per share next year. The firm's dividends have been growing at an annual rate of 6 percent, and this rate will continue indefinitely Source of capital weight Longterm debt 40% Preferred stock 15% Common stock 45% What is the firm's cost of capital? 5. Alexandria Power Company, find the WACC Assume the company's tax rate is 35 percent. Debt: 4,000 7 percent coupon bonds outstanding. $1,000 par value, 20 years to maturity, Selling for 105% of par, the bonds make semi-annual payments Common stock 90,000 shares outstanding, selling for $60 per share the beta is 1.10 Preferred stock 13,000 shares of 6 percent preferred stock outstanding currently selling for $110 per share. Market 8 percent market risk premium and 6 percent risk-free rate
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started