Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those earnings, the company paid a dividend of $1.33 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 30% debt, 25% preferred stock, and 45% common stock. It is taxed at a rate of 28%. a. If the market price of the common stock is $49 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 $5 per share, what is the company's cost of new common stock financing? c. The company can issue $1.71 dividend preferred stock for a market price of $25 per share. Flotation costs would amount to $4 per share. What is the cost of preferred stock financing? d. The company can issue $1,000-par-value, 9% coupon, 6-year bonds that can be sold for $1,260 each. Flotation costs would amount to $30 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing? LAMI Anan a. If the market price of the common stock is $49 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.) Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those earnings, the company paid a dividend of $1.33 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 30% debt, 25% preferred stock, and 45% common stock. It is taxed at a rate of 28%. a. If the market price of the common stock is $49 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 $5 per share, what is the company's cost of new common stock financing? c. The company can issue $1.71 dividend preferred stock for a market price of $25 per share. Flotation costs would amount to $4 per share. What is the cost of preferred stock financing? d. The company can issue $1,000-par-value, 9% coupon, 6-year bonds that can be sold for $1,260 each. Flotation costs would amount to $30 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing? LAMI Anan a. If the market price of the common stock is $49 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.)
