2.Milton Incorporation is planning a $100 million expansion. This expansion will be financed, in part with debt issued with a coupon interest rate of 9.50%. Interest is paid annually. The bonds have a 25-year maturity and a $1000 face value, and they will be sold to net Milton $1020 after issue costs. Milton’s marginal tax rate is 30%. Preferred stock will cost Milton 18% after tax. Milton common stock pays a dividend of $2 per share. The current market price per share is $25, and new share can be sold to net $24 per share. Milton’s dividends are expected to increase at an annual rate of 8% for the foreseeable future. Milton expects to have $30 million of retained earnings available to finance the expansion. Milton’s target capital structure is as follows: Debt 40% Preferred Stock 15% Common Equity 45% Calculate the weighted average cost of capital that is appropriate to use in evaluating this expansion program.
2.Milton Incorporation is planning a $100 million expansion. This expansion will be financed, in part with debt issued with a coupon interest rate of 9.50%. Interest is paid annually. The bonds have a 25-year maturity and a $1000 face value, and they will be sold to net Milton $1020 after issue costs. Milton’s marginal tax rate is 30%.
Milton’s target capital structure is as follows:
Debt 40%
Preferred Stock 15%
Common Equity 45%
Calculate the weighted average cost of capital that is appropriate to use in evaluating this expansion program.
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