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Please answer O and P, if the answer needs excel work please provide..Formula and work.. Thank you During the last few years, Jana Industries has
Please answer O and P, if the answer needs excel work please provide..Formula and work.. Thank you
During the last few years, Jana Industries has been too constrained by capital to make many capital investments. Recently, though, capital COSE declining, and the company has decided to look seriously at a major expansion Pos the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana's cost of capital. Joncs na provided you with the following data, which she believes may be relevant to your tasks The firm's tax rate is 40%. The current price of Jana's 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm's 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new issue. Jana's common stock is currently selling at $50 per share. Its last dividend (D) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana's beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.2% risk premium. Jana's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity. To help you structure the task, Leigh Jones has asked you to answer the following questions. 7 ) . 1 - CD 0. (1) Jana estimates that if it issues new common stock, the flotation cost will be 15%. Jana incorporates the flotation costs into the dividend growth approach. What is the estimated cost of newly issued common stock, taking into account the flotation cost? (2) Jana 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 issue? p. What four common mistakes in estimating the WACC should Jana avoid? ADDITIONALStep by Step Solution
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