Answered step by step
Verified Expert Solution
Question
1 Approved Answer
provide written solutions step by step (please no excel sheets) Niagara Inc. has 5,000,000 shares of common stock outstanding, 1,000,000 of preferred stock outstanding, and
provide written solutions step by step (please no excel sheets)
Niagara Inc. has 5,000,000 shares of common stock outstanding, 1,000,000 of preferred stock outstanding, and 200,000 bonds outstanding with a par value of $1,000. The common stock, currently sells for $25, and has a beta of 1.5. The preferred stock currently sells for $30 per share and pays $5 dividend. The bonds have 9% coupon rate and make semiannual coupon payments. The bonds have 25 years to maturity and currently are selling at $763.57. The risk-free rate is 5% and the expected return on the market is 12%. Niagara's tax rate is 40%. A. Estimate the cost of common stock. (3 marks) B. Estimate the cost of preferred stock. (3 marks) C. Estimate the after-tax cost of debt. (3 marks) D. Estimate the weighted average cost of capital for Niagara Inc. (4 marks) E. Niagara Inc. needs $8,000,000 to start a new project. Floatation costs for issuing new common stock - 12 percent, for new preferred stock - 8 percent, and for new debt - 4 percent. Assuming that Niagara Inc, maintains the same capital structure, how much does it need to raise Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started