Question
The firms target capital structure is as follows: Debt 35% Preferred Stock 15% Common Stock 50% The firm has the following information: A. Bond has
The firms target capital structure is as follows:
Debt 35%
Preferred Stock 15%
Common Stock 50%
The firm has the following information:
A. Bond has a par value of $1,000, coupon rate of 10%, compounded semi-annually, with 15
years maturity and currently sold at $1,100. Tax rate is 25%.
B. Preferred stock has dividends of $2.50, selling price of $65, with flotation cost of 7%.
C. For common stock, the firm has recently paid dividends of $3.00, and has stock price of
$107.80, flotation cost is 9% and growth rate is 6%. The beta is 0.95 and market risk
premium is 5% and risk-free rate is 4.20%.
Determine the following:
a) before tax cost of debt;
b) after-tax cost of debt;
c) cost of preferred stock;
d) cost of common equity (using CAPM)
please show on excel
e) cost of common equity (using dividend growth model);
f) cost of new common equity (using dividend growth model);
g) WACC if the company will not issue new stocks
h) WACC if the company will issue new stocks
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