Question
XYZ Co. is expanding. XYZ Co. can raise $80 million through retained earnings. XYZ Co will maintain the current capital structure of the following: Debt
XYZ Co. is expanding. XYZ Co. can raise $80 million through retained earnings. XYZ Co will maintain the current capital structure of the following: Debt = 47% Preferred Stock = 12% Equity = 41% Common Stock is trading at $18 per share Last year's dividend was $1.70 per share Growth rate = 7% and is expected to increase to 9% Preferred Stock is trading at $56 per share and yielding 7% in the market Flotation Costs of Common Stock = 9% Flotation Costs of Preferred Stock = 2.5% Current outstanding bonds are at 8%. Bonds of equal risk are currently yielding 7%. Tax rate = 43% A) Compute the cost of Kd, Kp, Ke, Kn. B) Calculate the weighted average cost of capital, assuming no external equity financing. C) How much can XYZ Co raise to fund the whole project, while using only internal financing?
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