Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer the question ASAP! Calculation of individual costs and WACC Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has

image text in transcribed

image text in transcribed

Please answer the question ASAP!

Calculation of individual costs and WACC Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data. The firm is in the 25% tax bracket. Debt The firm can raise debt by selling $1,000-par-value, 8% coupon interest rate, 13-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $25 per bond would have to be given. The firm also must pay flotation costs of $35 per bond. Preferred stock The firm can sell 8.5% preferred stock at its $95-per-share par value. The cost of issuing and selling the preferred stock is expected to be $7 per share. Preferred stock can be sold under these terms. Common stock The firm's common stock is currently selling for $60 per share. The firm expects to pay cash dividends of $6 per share next year. The firm's dividends have been growing at an annual rate of 7%, and this growth is expected to continue into the future. The stock must be underpriced by $4 per share, and flotation costs are expected to amount to $4 per share. The firm can sell new common stock under these terms. Retained earnings When measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available $150,000 of retained earnings in the coming year, once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing, a. Calculate the after-tax cost of debt. ..... b. The cost of preferred stock is %. (Round to two decimal places.) . c. The cost of retained earnings is %. (Round to two decimal places.) The cost of new common stock is %. (Round to two decimal places.) d. Using the cost of retained earnings, the firm's WACC is %. (Round to two decimal places.) Using the cost of new common stock, the firm's WACC is %. (Round to two decimal places.) d. Calculate the firm's weighted average cost of capital using the capital structure weights shown in the following table, (Round answer to the nearest 0.01%) b. The cost of preferred stock is %. (Round Data table C. The cost of retained earnings is %. (Roy The cost of new common stock is %. (Rour (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) d. Using the cost of retained earnings, the firm Using the cost of new common stock, the firm's Source of capital Long-term debt Preferred stock Common stock equity Total Weight 25% 20 55 100%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Housing Finance Reform

Authors: Susan M. Wachter, Joseph Tracy

1st Edition

0812248627, 978-0812248623

More Books

Students also viewed these Finance questions