DETEMINE:1 COST OF DEBT2 AFTER TAX COST OF DEBT3 COST OF PREFERRED STOCK4 COST OF RETAINED EARNINGS5 IF THE INCREASE IN RETAINED EARNINGSDURING THE CURRENT YEAR IS $350,000,CALCULATE THE TARGET CAPITAL STRUCTURE:- DEBTPREFERRED STOCKCOMMON EQUITY Hatch Corporation's target capital structure is 40 percent debt, 50percent common stock, and 10 percent preferred stock.Information regarding the company's cost of capital can besummarized as follows:• The company's bonds have a nominal yield to maturity of 7percent.• The company's preferred stock sells for $42 a share and paysan annual dividend of $4 a share.• The company's common stock sells for $28 a share, and isexpected to pay a dividend of $2 a share at the end of the year(i.e., Di = $2.00). The dividend is expected to grow at aconstant rate of 7 percent a year.• The firm will be able to use retained earnings to fund theequity portion of its capital budget.• The company's tax rate is 40 percent.

"As per Bartleby Policy, where multiple subparts have been asked, only the first three sub-parts are…

DETEMINE: 1 COST OF DEBT 2 AFTER TAX COST OF DEBT 3 COST OF PREFERRED STOCK 4 COST OF RETAINED EARNINGS 5 IF THE INCREASE IN RETAINED EARNINGS DURING THE CURRENT YEAR IS $350,000, CALCULATE THE TARGET CAPITAL STRUCTURE: - DEBT PREFERRED STOCK COMMON EQUITY

DETEMINE: 1 COST OF DEBT 2 AFTER TAX COST OF DEBT 3 COST OF PREFERRED STOCK 4 COST OF RETAINED EARNINGS 5 IF THE INCREASE IN RETAINED EARNINGS DURING THE CURRENT YEAR IS $350,000, CALCULATE THE TARGET CAPITAL STRUCTURE: - DEBT PREFERRED STOCK COMMON EQUITY

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 15PROB

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Question

DETEMINE:
1 COST OF DEBT
2 AFTER TAX COST OF DEBT
3 COST OF PREFERRED STOCK
4 COST OF RETAINED EARNINGS
5 IF THE INCREASE IN RETAINED EARNINGS
DURING THE CURRENT YEAR IS $350,000,
CALCULATE THE TARGET CAPITAL STRUCTURE:
- DEBT
PREFERRED STOCK
COMMON EQUITY

Hatch Corporation's target capital structure is 40 percent debt, 50
percent common stock, and 10 percent preferred stock.
Information regarding the company's cost of capital can be
summarized as follows:
• The company's bonds have a nominal yield to maturity of 7
percent.
• The company's preferred stock sells for $42 a share and pays
an annual dividend of $4 a share.
• The company's common stock sells for $28 a share, and is
expected to pay a dividend of $2 a share at the end of the year
(i.e., Di = $2.00). The dividend is expected to grow at a
constant rate of 7 percent a year.
• The firm will be able to use retained earnings to fund the
equity portion of its capital budget.
• The company's tax rate is 40 percent.

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