Question
Edna Recording Studios, Inc., reported earnings available to common stock of 4,600,000$ last year. From those earnings, the company paid a dividend of $1.21 on
Edna Recording Studios, Inc., reported earnings available to common stock of 4,600,000$ last year. From those earnings, the company paid a dividend of $1.21 on each of its common shares outstanding. The capital structure of the company includes 40% debt, 10% preferred stock, and %50 common stock. It is taxed at a rate of 21%.
a.If the market price of the common stock is $48 and dividends are expected to grow at a rate of 7% per year for the foreseeable future, what is the company's cost of retained earnings financing?
b.If underpricing and flotation costs on new shares of common stock amount to 7$ per share, what is the company's cost of new common stock financing?
c.The company can issue 1.76$ dividend preferred stock for a market price of 31$ per share. Flotation costs would amount to 2$ per share. What is the cost of preferred stock financing?
d.The company can issue 1,000$-par-value, 7% annual coupon, 10-year bonds that can be sold for 1,200$ each. Flotation costs would amount to 30$ per bond. What is the after-tax cost of debt financing? e.What is the WACC?
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