Question
GrowthCompany's current share price is $20.00 and it is expected to pay a $ 1 . 3 0 dividend per share next year. After that,
GrowthCompany's current share price is $20.00and it is expected to pay a $1.30dividend per share next year. Afterthat, thefirm's dividends are expected to grow at a rate of 3.8%per year.
a. What is an estimate of GrowthCompany's cost ofequity?
b. Growth Company also has preferred stock outstanding that pays a $2.30 per share fixed dividend. If this stock is currently priced at $28.10, what is GrowthCompany's cost of preferredstock?
c. Growth Company has existing debt issued three years ago with a coupon rate of 6.2%. The firm just issued new debt at par with a coupon rate of 6.3%.What is GrowthCompany's cost ofdebt?
d. Growth Company has 4.6 million common shares outstanding and 1.3 million preferred sharesoutstanding, and its equity has a total book value of $50.1 million. Its liabilities have a market value of $19.6 million. If GrowthCompany's common and preferred shares are priced as in parts (a) and (b), what is the market value of GrowthCompany's assets?
e. Growth Company faces a 35% tax rate. Given the information in parts (a) through (d), and your answers to thoseproblems, what is GrowthCompany's WACC?
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