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hi !! please solve asap !!!! a. Lancaster Engineering Inc. (LEI) has asked a group of financial consultants to help them determine their component and
hi !! please solve asap !!!!
a. Lancaster Engineering Inc. (LEI) has asked a group of financial consultants to help them determine their component and average costs of capital. The consultants have been able to gather the following information: The current interest rate for loan is 8% before tax. Company has preferred stock that pays a $13 dividend per share and sells for $100 per share in the market. The common stock has a market price of $40 and expects to pay the dividend of $4 per share at the end of the coming year, and is expected to grow at a constant annual rate of 6 percent. The firm is trying to sell new issues of stock and its flotation cost is 10 percent. The market values of the sources of financing are loan at $2,500,000, common stock at $6,000,000, and preferred stock at $500,000. The firm is in a 40% tax bracket. Required: i Calculate the cost of each component of the capital structure (1.e. after tax cost of debt, preferred stock, retained earnings, and the new common stock.) ii. The weighted average cost of capital including all components costs. If the risk free rate is 5%, and the market risk premium is 6%. What would LEI's beta unlevered (bu) be if the company had no debt in its capital structure? 111Step by Step Solution
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