Cost of capital GB timbers GMBh, based in germany,supplier timber products to construstion and manufacturing industries.The company reported after -tax earnings available to common stock of $3,200,000.from these earning ,the management decided to pay dividednd of $0.80 on each of its 4,000,000 common shared out standing.The capital structure of company includeds 30% debt ,40% common stock and 30% preferred stock.The tax rate applicable to GB timber is30%.a) if the markt price of common stock is $3.60 and dividens are expected to growat a rate of 8% per year for the foreseable future,what is the requeired returned on the company's common stock?b) if underpricing and flotation costs on new shares of common stock amount to $0.40 per share ,what is the company's cost of new common stock financing?c)The company can issue a $1.00 dividend preferred stock for a market price of $10.00 per share.Flotation costs would amount to $0.60 per share. What is the cost of preferred stock financing?d) In addition, the company can issue $100 par value , 8% coupon , 10 yers bonds that can be sold to for $110 each.Flotation cost would amount to $2 per bond.Use the estimation formula to figure the approximate cost of debt financing.e) What is the WACC dinerences.P9-16 Cost of capital GB Timbers GmbH, based in Germany, supplies timber products toconstruction and manufacturing industries. The company reported after-tax earningsavailable to common stock of €3,200,000. From these earnings, the managementdecided to pay a dividend of €0.80 on each of its 4,000,000 common shares out-standing. The capital structure of the company includes 30% debt, 40% commonstock, and 30% preferred stock. The tax rate applicable to GB Timbers is 30%.a. If the market price of the common stock is €3.60 and dividends are expected togrow at a rate of 8% per year for the foreseeable future, what is the requiredreturn on the company's common stock?b. If underpricing and flotation costs on new shares of common stock amount to €0.40 per share, what is the company's cost of new common stock financing?c. The company can issue a €1.00 dividend preferred stock for a market price of€10.00 per share. Flotation costs would amount to €0.60 per share. What is thecost of preferred stock financing?d. In addition, the company can issue €100-par-value, 8% coupon, 10-year bondsthat can be sold for €110 each. Flotation costs would amount to €2 per bond.Use the estimation formula to figure the approximate cost of debt financing.e. What is the WACC?

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Answered: a) if the markt price of common stock…

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Cost of capital GB timbers GMBh, based in germany,supplier timber products to construstion and manufacturing industries.The company reported after -tax earnings available to common stock of $3,200,000.from these earning ,the management decided to pay dividednd of $0.80 on each of its 4,000,000 common shared out standing.The capital structure of company includeds 30% debt ,40% common stock and 30% preferred stock.The tax rate applicable to GB timber is30%.

a) if the markt price of common stock is $3.60 and dividens are expected to growat a rate of 8% per year for the foreseable future,what is the requeired returned on the company's common stock?

b) if underpricing and flotation costs on new shares of common stock amount to $0.40 per share ,what is the company's cost of new common stock financing?

c)The company can issue a $1.00 dividend preferred stock for a market price of $10.00 per share.Flotation costs would amount to $0.60 per share. What is the cost of preferred stock financing?

d) In addition, the company can issue $100 par value , 8% coupon , 10 yers bonds that can be sold to for $110 each.Flotation cost would amount to $2 per bond.Use the estimation formula to figure the approximate cost of debt financing.

e) What is the WACC

dinerences.
P9-16 Cost of capital GB Timbers GmbH, based in Germany, supplies timber products to
construction and manufacturing industries. The company reported after-tax earnings
available to common stock of €3,200,000. From these earnings, the management
decided to pay a dividend of €0.80 on each of its 4,000,000 common shares out-
standing. The capital structure of the company includes 30% debt, 40% common
stock, and 30% preferred stock. The tax rate applicable to GB Timbers is 30%.
a. If the market price of the common stock is €3.60 and dividends are expected to
grow at a rate of 8% per year for the foreseeable future, what is the required
return on the company's common stock?
b. If underpricing and flotation costs on new shares of common stock amount to €
0.40 per share, what is the company's cost of new common stock financing?
c. The company can issue a €1.00 dividend preferred stock for a market price of
€10.00 per share. Flotation costs would amount to €0.60 per share. What is the
cost of preferred stock financing?
d. In addition, the company can issue €100-par-value, 8% coupon, 10-year bonds
that can be sold for €110 each. Flotation costs would amount to €2 per bond.
Use the estimation formula to figure the approximate cost of debt financing.
e. What is the WACC?

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