Current assets Net Fixed assets Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (D)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. Calculate the cost of the following capital components (answers should be in % with two decimal points): the cost of newly issued common stock using the DCF method Now calculate the cost of common equity from retained earnings, using the CAPM method
Current assets Net Fixed assets Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (D)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. Calculate the cost of the following capital components (answers should be in % with two decimal points): the cost of newly issued common stock using the DCF method Now calculate the cost of common equity from retained earnings, using the CAPM method
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter15: Contributed Capital
Section: Chapter Questions
Problem 16E: Contributed Capital Adams Companys records provide the following information on December 31, 2019:...
Related questions
Question
Transcribed Image Text:Current assets
Net Fixed assets
Total assets
Accounts payable and accurals.
Short term debt
Long term debt
Preferred Stock (10,000 shares)
Common Stock (50,000 shares)
Retained earnings
.
Total common equity
Total liabilities and equity
$2,000
3,000
$5,000
$900
100
1,100
250
1,300
1,350
$2,650
$5,000
Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00,
last year's dividend (Do)was $2.25, and a flotation cost of 10% would be required to sell
new common stock. Security analysts are projecting that the common dividend will grow
at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share,
and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is
12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual
coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk-
free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of
the company's short-term debt and long-term debt, equals $1.2 million.
Use this data to answer the questions in the assignment.
Calculate the cost of the following capital components (answers should be in % with two
decimal points):
the cost of newly issued common stock using the DCF method
Now calculate the cost of common equity from retained earnings, using the CAPM method
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:
9781337794756
Author:
HEINTZ, James A.
Publisher:
Cengage Learning,
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning