Edna Reporting Studios Inc, reported earnings available to common stock of $4,20

Question

  Edna Reporting Studios Inc, reported earnings available to common stock of $4,200,000 last year. From those earnings, the company paid dividends of $1.29 on each of each $1,000,000 common shares outstanding. The capital structure of the company includes 40% debt, 10% preferred stock and 50% common stock. It’s taxed at a rate of 35%.

a.If the market price of the common stock is $46 and dividends are expected to grow at a rate of 8% per year for the foreseeable future, the company's cost of retained earnings financing is ______% (round two decimal places)

b.If under pricing and flotation costs on new shares of common stock amount to $7.00 per share, the company’s cost of new common stock financing is ______% (round two decimal places)?

c.The company can issue $1.96 dividend preferred stock for a market price of $32.00 per share, and Flotation costs would amount to $6.00 per share, the cost of preferred stock financing is ______% (round two decimal places)

d. if the company can issue $1,000-par value, 10% coupon, 5-year bonds that can be sold for $1.60 each. Flotation costs would amount to $30 per bond, using the estimation formula, the approximate after-tax cost of debt financing is ______% (round two decimal places)

e. using the cost of retained earnings r r the firms WACC r a is ______% (round two decimal places)

using the cost of new common stock r n the firms WACC r a is ______% (round two decimal places)

Explanation / Answer

Cost of retained earning =D1/P0+g

( 1.3932/46)+.08

11.03%

New share financing (1.3932/46-7)+.08

11.57%

Cost of prefered stock =1.96/26

=7.53%

d something wrong here bonds can be sold for $1.6notclear as par value of bond is 1000

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