An investment amount of $10M has to be raised through equity financing and debt financing. The required debt ratio is 0.40 and the company tax rate is 35%. a) The current market price of the companys common stock is $50 and the current dividend is $5

and the dividend is expected to grow at 5% annual rate. The floating cost of issuing a common stock is 10%. Preferred stocks of $100 par value with 10% fixed annual dividend can also be issued at 8% floating cost. If the required proportion of funds from retained earnings to common stocks to preferred stocks are 0.4:0.2:0.4 respectively, what is the

2. (10 points) An investment amount of $10M has to be raised through equity financing and debt financing. The required debt ratio is 0.40 and the company tax rate is 35%. a) The current market price of the company's common stock is $50 and the current dividend is $5 and the dividend is expected to grow at 5% annual rate. The floating cost of issuing a common stock is 10%. Preferred stocks of $100 par value with 10% fixed annual dividend can also be issued at 8% floating cost. If the required proportion of funds from retained earnings to common stocks to preferred stocks are 0.4:0.2:0.4 respectively, what is the cost of equity? b) Bank loans at 12% annual interest. Also, the company issues 20-year bonds that pay the equivalent of 9.5% yield to maturity. If the required ratio of funds raised through these two methods of debt financing is 0.6:0.4 what is the cost of debt? c) From (a) and (b), what is the cost of capital (WACC)? 2. (10 points) An investment amount of $10M has to be raised through equity financing and debt financing. The required debt ratio is 0.40 and the company tax rate is 35%. a) The current market price of the company's common stock is $50 and the current dividend is $5 and the dividend is expected to grow at 5% annual rate. The floating cost of issuing a common stock is 10%. Preferred stocks of $100 par value with 10% fixed annual dividend can also be issued at 8% floating cost. If the required proportion of funds from retained earnings to common stocks to preferred stocks are 0.4:0.2:0.4 respectively, what is the cost of equity? b) Bank loans at 12% annual interest. Also, the company issues 20-year bonds that pay the equivalent of 9.5% yield to maturity. If the required ratio of funds raised through these two methods of debt financing is 0.6:0.4 what is the cost of debt? c) From (a) and (b), what is the cost of capital (WACC)