Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital: Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10. Rose Gardens can issue bonds with a par value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. Rose Garden’s is also considering selling preferred stock that pays dividends of $2.00 and has a flotation cost of $10. Requirement: Calculate the value of each of the above securities. Keep in mind that the expected rate of return for all securities mentioned above is 7%.

Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital: Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10. Rose Gardens can issue bonds with a par value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. Rose Garden’s is also considering selling preferred stock that pays dividends of $2.00 and has a flotation cost of $10. Requirement: Calculate the value of each of the above securities. Keep in mind that the expected rate of return for all securities mentioned above is 7%.

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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NO.2 Rose Gardens is looking into raising $500,000. The following are potential opportunities for raising this capital: Rose Gardens’ common stock paid dividends of $1.50 and they anticipate that it will grow at a rate of 3% for the foreseeable future. Floatation cost is $10. Rose Gardens can issue bonds with a par value of the bond is $1,000 offering a coupon rate of 6%. Interest is expected to be paid annually. These bonds will mature in 5 years. Administrative fees will be $15. Rose Garden’s is also considering selling preferred stock that pays dividends of $2.00 and has a flotation cost of $10. Requirement: If Rose Gardens has the following capital weights for raising capital, determine the amounts that will be raised by debt, common stock and preferred stock – 40% debt, 20% preferred stock and 40% common stock. Keep in mind that Retained Earnings contains $250,000. Make sure to support your answer with workings and explanations. Tax rate is 30%
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Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital?
Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. f Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]
Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] Evaluate the two finance options and identify which…
Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.]
Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result.] b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? [Note: you are supposed to show every step of your calculation and interpret the result. c) Evaluate the two finance options and identify…
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