Question
Firm calculating cost of capital for major expansion program. Tax rate = 40%. 10-year, 12% coupon, semiannual payment noncallable bonds sell for $1,153.72. New bonds
Firm calculating cost of capital for major expansion program.
Tax rate = 40%. 10-year, 12% coupon, semiannual payment noncallable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost. 8%, $100 par value, quarterly dividend, perpetual preferred stock sells for $111.10. Common stock sells for $60. D0 = $4.19 and g = 5%. b = 0.8; rRF = 7%; RPM = 6%. Bond-Yield Risk Premium = 2%. Target capital structure: 30% debt, 20% preferred, 50% common equity.
What is the companys after-tax cost of debt? What is the company's cost of preferred stock? What is the company's cost of common stock, using DDM, CAPM, Bond-yield risk premium approaches respectively? What is the companys WACC (assuming using cost of common stock calculated by DDM)?
*These are all parts of ONE question.
*We use a financial calculation and hand work not a spreadsheet.
Please help.
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