Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well

image text in transcribed

image text in transcribed

Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 45% long-term debt, 20% preferred stock, and 35% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 29% Debt The firm can sell for $1025 a 18-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 3.5% of the par value is required. Preferred stock 1 0.00% (annual dividend) preferred stock having a par value of $100 can be sold for S92. An additional fee of $6 per share must be paid to the underwriters Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $4.48 dividend payment, Do, that the company just recently made. If the company wants to issue new new common stock, it will sell them $3.00 below the current market price to attract investors, and the company will pay $4.00 per share in flotation costs. a. Calculate the after-tax cost of debt. b. Calculate the cost of preferred stock. C. Calculate the cost of common stock (both retained earnings and new common stock). d. Calculate the WACC for Dillon Labs

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

New Realse Flipping Houses Fast

Authors: Benjamin Stone

1st Edition

979-8857478608

More Books

Students also viewed these Finance questions