Question
AllOswegocompany's current share price is $20 and it is expected to pay a $1 dividend per share next year. After that, the firm's dividends are
AllOswegocompany's current share price is $20 and it is expected to pay a $1 dividend per share next year. After that, the firm's dividends are expected to grow at a constant rate of 4% per year.
1) what is an estimate of Alloswego'scost of capital? (hint: thinking about $1 dividend is D1 or D0 when you apply the formula)
2)AllOswegoalso has preferred stock outstanding that pays a $2 per share fixed dividend and the preferred stock is currently priced at $28,
What is AllOswego'scost of preferred stock?
3)AllOswegohas 5 million common shares outstanding and 1 million preferred shares outstanding, and its equity has a total book value of $50 million. Its liabilities have a market value of $20 million. If AllOswego's common and preferred sharsare priced as in question 1 and 2,what is the market value of AllOswego'stotal assets? and what are the weights of common stock, preferred stock and debt respectively?
4)AllOswegofaces a 40% tax rate and 6% pretax cost of debt. Given the information in questions 1 to 3 and your answers to those problems,what is AllOswego'sWACC?
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