Question
The Mays Co. has established a target capital structure of 45 percent debt, 10 percent preferred, and 45 percent common equity.Mays must pay a 6
The Mays Co. has established a target capital structure of 45 percent debt, 10 percent preferred, and 45 percent common equity.Mays must pay a 6 percent flotation fee if it issues new common stock.The current market price of the firm's stock is $48; its last dividend was $0.68, and its expected growth rate is 13 percent.The firm's projected net income for next year is $158 million and it maintains a dividend payout ratio of 25 percent.The capital budget for next year is $200,000,000.
a.What is the percentage cost of retained earnings?
b.What is the percentage cost of a new common stock issue?
c.What is the maximum capital budget that Mays can support with retained earnings?
d.Given the $200,000,000 budget, what will be Mays' marginal percentage cost of common equity
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