Cost of Different Sources of Capital Financing

1. Explain what the capital structure of a company is. 2. It lists the long-term sources of financing used by companies to finance investment capital, in order from least to greatest cost, and explains what is the factor that causes one source of capital to be more or less expensive than the other sources. 3. Using the cost-of-debt approximation formula, determine the pre-tax cost for a bond that sells at $ 925 par value and pays a coupon of $ 85 for 20 years. The flotation costs are $ 5 per bond. You must show the calculations to receive a score for your answer. 4. For the case in problem 3, calculate the cost of debt after taxes if the company's tax liability is 40%. You must show the calculations to receive a score for your answer. 5. Consider issuing preferred shares with an annual dividend of $ 12.00 per preferred share. These shares will sell for $ 100 each. The cost of issuance (flotation cost) is $ 8 per share. Calculate the cost of preferred capital. You must show the calculations to receive a score for your answer. 6. The DupT corporation plans to do a common stock issue to finance its next equity investment project. The market price of the corporation's stock is $ 75 per share. A dividend of $ 5 per share is expected to be paid at the end of the year. The corporation has had an average annual growth of 6%. The issue cost is $ 2.50 per share. Determine the cost of equity capital using Gordon's constant growth method (Gordon Growth Model). You must show the computations to receive credit for your