F1 Builtrite has come up with the following capital structure which management believes is optimal:Debt40%Preferred stock10%Common stock50%Bonds: Builtrite is planning on offering a $1000 par value, 20-year, 8% coupon bond with an expectedselling price of $1025. Flotation costs would be $55 per bond.Preferred Stock: Builtrite could sell a $49 par value preferred with an 8% coupon for $42 a share.Flotation costs would be $2 a share.Common stock: Currently, the stock is selling for $62 a share and has paid a $2.82 dividend. Dividendsare expected to continue growing at 10%. Flotation costs would be $3.75 a share and Builtrite has$350,000 in available retained earnings.Assume a 40% tax bracket.What is the after-tax cost of preferred stock?9.80%O 6.47%O 9.68%○ 8.76%#3EF3F4*-54R%285TF66YF7&7CFB8*COP

Here's a detailed calculation for better understanding.Since preferred stock dividends are not…

Answered: Builtrite has come up with the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

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Newman International has an optimal capital structure that consists of 35.00% debt, 15.00% preferred equity, and 50.00% common equity. Their new bond issue will have a coupon rate of 7.20%. Their preferred stock currently sells for $40 per share, and floating new shares would cost $2.00 per share. The preferred dividend is fixed at $2.60 annually. Newman’s common stock has a current market price of $33.00, and floating new common shares would cost Newman 6.00% of the share price. The most recent annual common dividend paid was $2.50, and the dividend is expected to grow at an annual rate of 5.00%. The firm’s marginal tax rate is 30.00%. Use these data to calculate Newman’s cost of issuing new common equity. Calculate the percentage to 2 decimal places
Newman International has an optimal capital structure that consists of 35.00% debt, 15.00% preferred equity, and 50.00% common equity. Their new bond issue will have a coupon rate of 7.20%. Their preferred stock currently sells for $40 per share, and floating new shares would cost $2.00 per share. The preferred dividend is fixed at $2.60 annually. Newman’s common stock has a current market price of $33.00, and floating new common shares would cost Newman 6.00% of the share price. The most recent annual common dividend paid was $2.50, and the dividend is expected to grow at an annual rate of 5.00%. The firm’s marginal tax rate is 30.00%. Use these data to calculate Newman’s after-tax cost of debt. Calculate the percentage to 2 decimal places (0.03148 = 3.15) 6
Newman International has an optimal capital structure that consists of 35.00% debt, 15.00% preferred equity, and 50.00% common equity. Their new bond issue will have a coupon rate of 7.20%. Their preferred stock currently sells for $40 per share, and floating new shares would cost $2.00 per share. The preferred dividend is fixed at $2.60 annually. Newman’s common stock has a current market price of $33.00, and floating new common shares would cost Newman 6.00% of the share price. The most recent annual common dividend paid was $2.50, and the dividend is expected to grow at an annual rate of 5.00%. The firm’s marginal tax rate is 30.00%. Use these data to calculate Newman’s WACC using internal equity and new common equity. Calculate the percentage to 2 decimal places
XYZ Company has a target capital structure of 60% common stock, 30% debt, and 10% preferred stock. The company wishes to issue new bond ($1,000 par value) with 10% coupon rate and 30 years to maturity. The flotation costs will be $20 and the bond has to be sold at 5% discount. To issue new preferred stock the company has to pay $2 as flotation cost. The market value of preferred stock is $8 and stock will pay $1 dividend. New common stocks will cost the company $2. The expected dividend is $3 and the market value is $19 and growth rate of 5%. Tax rate is 40%. What is the weighted average cost of capital?
IRIS Corp. has determined its optimal capital structure as follows. Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the…
IRIS Corp. has determined its optimal capital structure as image Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the firm…
IRIS Corp. has determined its optimal capital structure as image Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the firm…
IRIS Corp. has determined its optimal capital structure as image Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital assuming the firm…
Preston Corp. is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sells for $1,100. The firm could sell, at par, $100 preferred stock which pays a 7.57 percent annual dividend, but flotation costs of 5 percent would be incurred. Preston's beta is 1.2, the risk-free rate is 3 percent, and the market risk premium is 5 percent. The firm's marginal tax rate is 40 percent. What is Preston's WACC?
A firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Debt: The firm can sell a 20-year, $1,000 par value, 9 percent bond for $980. A flotation cost of 2 percent of the face value would be required in addition to the discount of $20. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: The firm's common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.45. It is expected that to sell, a new common stock issue must be underpriced at $1 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm's marginal tax rate is 40 percent.…
IRIS Corp. has determined its optimal capital structure as follows: (ATTACHED) Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the stock is $2.5 per share. Common Stock: The firm's common stock is currently selling for $25 per share. The dividend expected to be paid at the end of the coming year is $3.75. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $1.45. It is expected that to sell, a new common stock issue must be underpriced at $2 per share and the firm must pay $0.75 per share in flotation costs. Additionally, the firm's marginal tax rate is 20 percent. Calculate the firm's weighted average cost of capital…
Pare Food is interested in calculating its weighted average cost of capital (WACC). The company’s CFO has collected the following information: The target capital structure consists of 40 percent debt and 60 percent common stock. The company has 20-year noncallable bonds with a par value of $1,000, a 9 percent annual coupon, and is now selling 92 1/4. Equity flotation costs are 2 percent. The company’s common stock has a beta of 0.8. The risk-free rate is 5 percent. The market risk premium is 4 percent. The company’s tax rate is 40 percent. Compute WACC

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