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need asap A firm has determined its optimal structure which is composed of the following sources and target market value proportions. Target Market Source of
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A firm has determined its optimal structure which is composed of the following sources and target market value proportions. Target Market Source of Capital Proportions Long-term debt Common stock equity 40 Debt: The firm can sell a 15-year, RM1,000 par value, 8 percent bond for RM1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of RM50. Common Stock: A firm's common stock is currently selling for RM75 per share. The dividend expected to be paid at the end of the coming year is RM5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was RM3.10. The firm must pay RM1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent Calculate: The firm's cost of a new issue of common stock (6 marks) 4. The firm's cost of retained earnings (2 marks) 6. The weighted average cost of capital up to the point when retained earnings are exhausted (3 marks) The weighted average cost of capital, assuming the firm plans to pay out all of its earnings as dividendStep by Step Solution
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