Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Show me the steps to solve Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $ 4 , 6 0

Show me the steps to solve
Cost of capitalEdna Recording Studios, Inc., reported earnings available to common stock of $4,600,000 last year. From those earnings, the company paid a dividend of $1.19
on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 25%debt,20% preferred stock, and 55% common stock. It is taxed at a rate of 21%.
a.If the market price of the common stock is $31 and dividends are expected to grow at a rate of 9% per year for the foreseeable future, what is the company's cost of retained earnings financing?
b.If underpricing and flotation costs on new shares of common stock amount to $8 per share, what is the company's cost of new common stock financing?
c.The company can issue $1.95 dividend preferred stock for a market price of $33 per share. Flotation costs would amount to $2 per share. What is the cost of preferred stock
financing?
d.The company can issue $1,000-par-value, 11% annual coupon, 14-year bonds that can be sold for $1,220 each. Flotation costs would amount to $40 per bond. What is the after-tax cost of debt financing?
e.What is the WACC?
Using the cost of retained earnings, r Subscript rr, the firm's WACC, r Subscript ra, is 10.23%.
Using the cost of new common stock, r Subscript rn, the firm's WACC, r Subscript ra, is 11.04%.

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_2

Step: 3

blur-text-image_3

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

Personal Financial Planning

Authors: Lawrence J. Gitman, Michael D. Joehnk, Randy Billingsley

13th edition

1111971633, 978-1111971632

More Books

Students also viewed these Finance questions

Question

???? Model the effects of economic growth policies

Answered: 1 week ago

Question

International conference on population and development ?

Answered: 1 week ago

Question

Approach to population ?

Answered: 1 week ago

Question

The concept of development ?

Answered: 1 week ago

Question

To make available communication media?

Answered: 1 week ago

Question

Explain the treaty of purandar in ancient time ?

Answered: 1 week ago