Contemporary Financial Management, Loose-leaf Version
14th Edition
ISBN: 9781337090636
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: South-Western College Pub
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Chapter 12, Problem 4P
a)
Summary Introduction
To determine: The after-tax cost of
b)
Summary Introduction
To determine: The after-tax cost of preferred stock.
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Smiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.90 dividend every year, in perpetuity.
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Chapter 12 Solutions
Contemporary Financial Management, Loose-leaf Version
Ch. 12 - Prob. 1QTDCh. 12 - Prob. 2QTDCh. 12 - Prob. 3QTDCh. 12 - Prob. 4QTDCh. 12 - Prob. 5QTDCh. 12 - Prob. 6QTDCh. 12 - Prob. 7QTDCh. 12 - Prob. 8QTDCh. 12 - Prob. 9QTDCh. 12 - Prob. 10QTD
Ch. 12 - Prob. 11QTDCh. 12 - Prob. 12QTDCh. 12 - Prob. 13QTDCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10PCh. 12 - Prob. 11PCh. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Prob. 23PCh. 12 - Prob. 24PCh. 12 - Prob. 26P
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- Bedeker, Inc., has an issue of preferred stock outstanding that pays a $4.15 dividend every year in perpetuity. If this issue currently sells for $95 per share, what is the required return?arrow_forwardXYZ Inc. is preparing to issue preferred stock. The preferred stock will have a P100 par value and will pay P8 per year in dividends. DRW’s marginal tax rate is 34%. Flotation costs for the new issue will be P2.38 per share. The issue price is expected to be P96.50 per share. Based on this information, DRW’s cost of preferred stock is nearest:  a. 5.3% b. 8.5% c. 5.6% d. 8%arrow_forwardA. Torch Industries can issue perpetual preferred stock at a price of $55.00 a share. The stock would pay a constant annual dividend of $4.50 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places.  = %_______  B. The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 8%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1,180. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets  Liabilities And Equity Cash $ 120  Accounts payable and accruals $ 10 Accounts receivable 240  Short-term debt 60 Inventories 360  Long-term debt 1,120 Plant and equipment, net 2,160  Common equity 1,690 Total assets $2,880  Total liabilities and equity $2,880 Calculate Paulson's WACC using…arrow_forward
- Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $2.75 at the end of each year. What is the required rate of return?arrow_forwardBarton Industries can issue perpetual preferred stock at a price of $52 per share. The stock would pay a constant annual dividend of $3.80 per share. If the firm's marginal tax rate is 40%, what is the company's cost of preferred stock? Round your answer to 2 decimal places.arrow_forwardBarton Industries can issue perpetual preferred stock at a price of $44 per share. The stock would pay a constant annual dividend of $3.20 per share. If the firm's marginal tax rate is 25%, what is the company's cost of preferred stock? Round your answer to two decimal places.arrow_forward
- Trivoli industries plans to issue perpetual preferred stock with an P11 dividend. The stock is currently selling for P97. Flotation costs is 5% of the market price. The company's earnings are expected to grow at a constant 5% annually and is subject to 30% corporate tax. What is the cost of the preferred stock?arrow_forwardA company has a preferred stock that can be sold for $15 per share. The preferred stock pays an annual dividend of 3% based on a par value of $100. Flotation costs associated with the sale of the stock are $1 per share. The company’s marginal tax rate is 40%. The cost of the preferred stock is: a) 20.0% b) 21.4% c) 12.0% d) 12.8%arrow_forwardSmiling Elephant, Inc., has an issue of preferred stock outstanding that pays a $5.30 dividend every year, in perpetuity.  If this issue currently sells for $80.25 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forward
- The preferred stock of Rock Bottom Floors pays a fixed dividend of $7.50 annually. Each share of this stock is selling for $58.05 a share. What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value per share is $100?arrow_forwardFegley, Incorporated, has an issue of preferred stock outstanding that pays a $5.90 dividend every year, in perpetuity. If this issue currently sells for $80.55 per share, what is the required return?  E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. If you require a return of 8.75 percent on this stock, how much should you pay today?  The stock price of Fujita Company is $53.70. Investors require a return of 15 percent on similar stocks. If the company plans to pay a dividend of $3.50 next year, what growth rate is expected for the company’s stock price?arrow_forwardYou own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today?arrow_forward
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