Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4.800,000 last year. From those earnings, the company paid a dividend of $1.31 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 45% debt, 25% preferred stock and 30% common stock. It is taxed at a rate of 29% a. If the market price of the common stock is $32 and dividends are expected to grow at a rate of 9% per year for the foreseeable future, what is the company's cost of retained earnings financing? b. If underpricing and flotation costs on new shares of common stock amount to $7 per share, what is the company's cost of new common stock financing? C. The company can issue $2.46 dividend preferred stock for a market price of $26 per share. Flotation costs would amount to $3 per share What is the cost of preferred stock financing? d. The company can issue $1.000 par value, 7% coupon, 13-year bonds that can be sold for $1.210 each. Flotation costs would amount to $35 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing? e. What is the WACC? a. If the market price of the common stock is $32 and dividends are expected to grow at a rate of 9% per year for the foreseeable future, the company's cost of retained earnings financing is % (Round to two decimal places.) b. If underpricing and flotation costs on new shares of common stock amount to $7 per share the company's cost of new common stock financing is % (Round to two decimal places) c. If the company can issue 52.46 dividend preferred stock for a market price of $26 per share, and flotation costs would amount to 53 per share, the cost of preferred stock financing is % (Round to two decimal places.) d. If the company can issue $1,000-par-value, 7% coupon, 13-year bonds that can be sold for $1.210 each, and flotation costs would amount to S35 per bond, using the estimation formula, the approximate after-tax cost of debt financing is % (Round to two decimal places) e. Using the cost of retained earnings, or the firm's WACC, is % (Round to two decimal places) Using the cost of new common stock, in the firm's WACC ris % (Round to two decimal places)
