Question
East Realm is financed with 35% debt, 50% equity, and 15% preferred stocks. EQUITY: East Realm current dividend is $5 , and it is expected
East Realm is financed with
35%
debt,
50%
equity, and
15%
preferred stocks.\ EQUITY: East Realm current dividend is
$5
, and it is expected to grow at a rate of
4%
each year. The stock price for East Realm is
$60
. East Realm ha
$350
million in retained earnings that can be used as a source of internal equity financing. Any equity capital more than
$350
million needs to be sourced with issuance of external equity at net proceeds of
$57
.\ DEBT: East Realm can borrow up to
$300
million from a local bank at the before-tax rate of
6%
. To raise more debt, East Realm has to issue a 10-year bond with a coupon rate of
8%
at net proceeds of
$940
per
$1,000
face value.\ PREFERRED: East Realm's preferred stock pays constant dividend of
$4
and is priced at
$35
. East Realm preferred stock has a
$1
issuance cost. P net\ Lastly, East Realm's tax rate is
35%
.
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