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I have the answers to these problems, but I am unsure of how to actually solve. Please show me how to manually work these out.
I have the answers to these problems, but I am unsure of how to actually solve. Please show me how to manually work these out. Thanks!
o. 1. Harry Davis estimates that if it issues new common stock, the flotation cost will be 15%. Harry Davis incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, taking into account the flotation cost? Answer: DPS1 3.12(1.058) Po (1 - f) = 50* (1 0.15) = 13.57% Ke - g Ke - 0.058 = 0. o. 2. Suppose Harry Davis issues 30-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. If flotation costs are 2%, what is the after- tax cost of debt for the new bond? Answer: Using a financial calculator, [(1 + Kd) 1]) MV Po(1 f) = C(1 t) + Ka (1 + Kan (1 + Ka)" -- 1000* (1 0.02) = 100(1 0.40) = * [(1 + Ka)" 1] Ka (1 + Ka)" 1000 + (1 + Kd)" Kd=6.15%Step by Step Solution
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