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QUESTION 3 The information for Sweiham power company is shown below. The company has a tax rate of 25% $ 600,000 Capital structure of Sweiham
QUESTION 3 The information for Sweiham power company is shown below. The company has a tax rate of 25% $ 600,000 Capital structure of Sweiham Co. Long term debt Bonds Equity Preferred Shares Ordinary Shares Total 300,000 1,000,000 1,900,000 Debt: 8 percent coupon bonds outstanding with a face value of $1,000. Bonds have 20 years to maturity, and are presently selling in the market at $950. The interest is paid annually. Common stock: Currently selling for $95 per share, Sweiham Co, expects to pay a dividend of $1.5 per common share at the end of the year. The forecasted growth in dividends is 6% per year. Preferred stock: Currently selling for $120 per share and paying a dividend of $6 per year. Flotation costs are expected to be $3 per share. Required: a) Calculate the after-tax cost of debt (3 Marks) b) Calculate the cost of common stocks (2.5 Marks) c) Calculate the cost of preferred stocks (2.5 Marks) d) Calculate the WACC? (4 Marks) e) What is the importance of the company's WACC for evaluating projects
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