Calculation of individual costs and WACC
Debt
Preferred Stock
Common Stock
A) calculate the after-tax cost of debt
B) Calculate the cost of preferred stock
C) Calculate the cost of common stock
D) Calculate the WACC Dillon Labs
Score: 0 of 5 pts 8 of 8 (6 complete) HW Score: 75%, 30 of 40 pts P9-17 (similar to) Question Help Calculation of individual costs and WACC Dilon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted averagecost of capital The weighted average cost is to be measured by using the following weights 35% longterm debt, 15% preferred stock, and 50% common stock eqty (retained eamngs, new common stock, or both). The firm's tax rate is 40%. Debt The firm can sell for $960 a 13-year, $1,000-par-value bond payong annual i torest at a 8.00% co pon rate required in addition to the discount of $40 per bond A flotation cost of 2.5% of the par values Preferred stock 9 00% (annual dividend) preferred stock having a par value of $100 can be sold for S75 An additional fee of $2 per share must be paid to the Common stock The irm's common stock is currently selling for $90 per share. The dividend expected to be paid at the end of the coming year (2016) is $3.16. Its dividend payments, which have been approximately 50% of earnings per share in the past 5 years, were as shown in the following table It is expected that to attract buyers, new common stock must be underpriced $4 per share, and the frm must also pay 53.00 per shate in flotation costs. payments are expected to continue at 50% of earnings. (Assume that r,-r.) Dividend a. The after-tax cost of debt using the bond's yield to maturity (YTM) is 532 %. (Round to two decimal places.) The after-tax cost of debt using the approximation formula is (Round to two decimal places.) Data Table Click on the icon located on the top-right comer of the data table below in order to copy its contents into a spreadsheet.) Dividend5 2015 2014 2013 2012 2011 2.95 $2.76 $2.58 $2.41 $2.25 Print Done Score: 0 of 5 pts 8 of 8 (6 complete) HW Score: 75%, 30 of 40 pts P9-17 (similar to) Question Help required in adaton to the discount ot 340 per bond Preferred stock 900% (annual dividend) preferred stock having a par value of$100 can be sold for $75 An addional fee of $2 per share must be paid to the Common stock The firm's common stock is arrendy selling for $90 per share. Thededend expected to be paid at the end of corng year(2016) is $3. 6 lts dividend payments, which have been approximately 50% of earnings per share n the past 5 years, were as shown in the following table: It is expected that to aftract buyers, new common stock must be underpriced $4 per share, and the fim must also pay $3.00 per shane in fiotation costs. Dividend payments are expected to continue at 50% of earnings (Assume that G"..) a. Calculate the after-tax cost of debt b. Cakculate the cost of preferred stock . Calculate the cost of common stock. d. Calculate the WACC for Diion Labs. a. The after-tax cost of debt using the bond's yield to matuty(YTM) s 532 % (Round to two decmal places.) The after-tax cost of debt using the approximation formula is L %. (Round to two deo nal places.) Data Table (Click on the icon located on the top-right coner of the data table below in order to copy ts contents into a spreadsheet) ear 2014 2013 2012 2011 $2.95 $2.76 $2.58 52.41 $2.25 Print Done Enter your answer in the answer box and then click Check
