Calculation of individual costs and WACC Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data. The firm is in the 35% tax bracket. Debt The firm can raise debt by selling $1,000-par-value, 7% coupon interest rate, 15-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $25 per bond would have to be given. The firm also must pay flotation costs of $35 per bond. Preferred stock The firm can sell 6.5% preferred stock at its $105-per-share par value. The cost of issuing and selling the preferred stock is expected to be $4 per share. Preferred stock can be sold under these terms. Common stock The firm's common stock is currently selling for $80 per share. The firm expects to pay cash dividends of $7.5 per share next year. The firm's dividends have been growing at an annual rate of 8%, and this growth is expected to continue into the future. To sell new shares of common stock, the firm must underprice the stock by $5 per share, and flotation costs are expected to amount to $7 per share. The firm can sell new common stock under these terms. Retained earnings When measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available $150,000 of retained earnings in the coming year, once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing 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 firm's weighted average cost of capital using the capital structure weights shown in the following table, (Round answer to the nearest 0.01%) a. The after-tax cost of debt using the approximation formula is % (Round to two decimal places.) - X Data Table The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.) b. The cost of preferred stock is % (Round to two decimal places.) (Click on the icon located on the top-right corner of the data table below in order to c. The cost of retained earnings is %. (Round to two decimal places.) copy its contents into a spreadsheet.) Source of capital Weight The cost of new common stock is %. (Round to two decimal places.) Long-term debt 25% 20 d. Using the cost of retained earnings, the firm's WACC is %. (Round to two decimal places.) Preferred stock Common stock equity 55 Using the cost of new common stock, the firm's WACC is %. (Round to two decimal places.) Total 100% Print Done underprice they Cated Cew referred stock can be sold under these terms. for $80 per share. The firm expects to pay cash dividends of S75 per share next year. The firm's dividends have been growing at an annual rate of 8%, and this growth is expected to continue Into the fut expected to amount to 57 per share. The firm can sell new common stock under these terms. met concern itself with the tax bracket or brokerage fees of owners. It expects to have available 5150.000 of retained earnings in the coming year, once these retained earnings are exhausted the tem will the capital structure weights shown in the following table. (Round answer to the nearest 0.01%) Data Table is % (Round to two decimal places.) TM) i % (Round to two decimal places.) al places) imal places) (Click on the icon located on the top right corner of the data table below in order to copy its contents into a spreadsheet) Source of capital Weight D Long term debe 25% Preferred stock 20 Common stock equity 56 Total 100% mal places) ]% (Round to two decimal places) %. (Round to two decimal places) Print Done Cortion of Indicos and acc Long Er is een ing wat al Camerettes en loving the futet badet Como che construit is where the space of the deserberoving and speed hetToen Rutare tening the right, the federal contritte te bracket brage space where are in the coming these and are the time consocks the form carency 4. Codes the first wespect of the place town in the song and water The forta con un under
