Question
A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Debt: The firm can sell
A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions.
Debt: The firm can sell a 15-year, $1,000 par value, 8 percent semi-annual bond for $960. A flotation cost of 2 percent of the face value would also be required , but was not factored into the market price listed above. Preferred Stock: The firm has determined it can issue preferred stock at $25 per share par value. The stock will pay a $2.25 annual dividend. The cost of issuing and selling the stock is $2 per share. Common Stock: A firm's common stock is currently selling for $34 per share. The dividend expected to be paid at the end of this year is $2.74. Its dividend payments have been growing at a constant rate of 4% for the last four years. It is expected any new common stock issue would be subject to $1 per share in floatation costs. Additionally, the firm's marginal tax rate is 35 percent. The firm is considering a
a) The firm's before-tax cost of newly-issued debt is ?????
b) The firm's after-tax
c) The firm's cost of new preferred stock is ?????
d) The firm's cost of retained earnings is ???
e) The firm's cost of a new issue of common stock is ???
f) What is the firm's WACC if all new components had to be issued?????
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