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please answer a, b, and c, as well as the following d) find the firm's cost of financing a new common stock issue e) find
please answer a, b, and c, as well as the following
d) find the firm's cost of financing a new common stock issue
e) find the firm's weighted average cost of capital, if the firm uses debt, preferred stock and retained earnings to finance its investments
f) find the firm's weighted average cost of capital, if the firm uses debt, preferred stock, retained earnings, and the new stock issue to finance its investments
g) given the findings in part (e) and (f), explain what minimum rates of return must the firm require from its long-term investments
23) Weighted average cost of capital (15 points) long-term debt. 10% preferred stock, and 40% A firm's CEO has set the company's tarer canital structure as so common stock equity. The firm's corporate tax rate is 25 percent. To finance its planned capital expenditures, the firm is looking at the following sources of capital: Debt: The firm can sell 20-year $1.000 par value bonds that may a 6% Couron, with interest paid semi-annually, for $970. To issue the bond, the firm will have to pay $20 in flotation costs per bond, Preferred Stock: The firm can sell a 5% preferred stock at a par value of $100 per share. The cost of issuing and selling the preferred stock is $10 per share. Common Stock: The finn's common stock is currently selling for SS0 per share. This year, the firm paid $3 in dividends per share. The firm's dividends have been growing at a constant rate of 1.5% per year for the last ten years and are expected to sustain this growth rate thereafter. New common stock issue: If the firm decides to issue new common stock its underwriter indicated that the new stocks would sell for $42 per share. Further, the firm will have to pay $2 per share in flotation costs. Dividend and dividend growth rate are expected to remain the same. a) Find the firm's after-tax cost of debt financing (2 points) b) Find the firm's cost of preferred stock financing (2 points) c) Find the firm's cost of financing using the retained earnings (2 points) 23) Weighted average cost of capital (15 points) long-term debt. 10% preferred stock, and 40% A firm's CEO has set the company's tarer canital structure as so common stock equity. The firm's corporate tax rate is 25 percent. To finance its planned capital expenditures, the firm is looking at the following sources of capital: Debt: The firm can sell 20-year $1.000 par value bonds that may a 6% Couron, with interest paid semi-annually, for $970. To issue the bond, the firm will have to pay $20 in flotation costs per bond, Preferred Stock: The firm can sell a 5% preferred stock at a par value of $100 per share. The cost of issuing and selling the preferred stock is $10 per share. Common Stock: The finn's common stock is currently selling for SS0 per share. This year, the firm paid $3 in dividends per share. The firm's dividends have been growing at a constant rate of 1.5% per year for the last ten years and are expected to sustain this growth rate thereafter. New common stock issue: If the firm decides to issue new common stock its underwriter indicated that the new stocks would sell for $42 per share. Further, the firm will have to pay $2 per share in flotation costs. Dividend and dividend growth rate are expected to remain the same. a) Find the firm's after-tax cost of debt financing (2 points) b) Find the firm's cost of preferred stock financing (2 points) c) Find the firm's cost of financing using the retained earnings (2 points)Step by Step Solution
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