Question
The following information is given about your company. The company needs raise new capital to expand its facilities. The companys optimum capital structure has been
The following information is given about your company. The company needs raise new capital to expand its facilities. The companys optimum capital structure has been 45% debt, 10% preferred stock and 45% equity. The company will maintain this capital structure in financing this expansion plan. Currently the company's common stock is traded at a price of $20 per share. The last dividend paid on the common stock was $1.50 per share. The constant growth rate is 8%. The company's preferred stock is selling at $50 and has a quarterly preferred dividend of $1.5. Flotation costs have been estimated at 8% on the common stocks and 3% on the preferred stocks. The company has some bonds with $1000 par value outstanding, the market price of the bonds is $975, and the bonds have 9 years to maturity. The coupon rate on those bonds is 8% with semi-annual payments. The tax rate is 46%.
What is the cost of issuing new preferred stock?
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