cob-principles-of-managerial-finance-Ide (3).pdf (SECURED-Adobe Acrobat Reader D
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cob-principles-of-managerial-finance-Ide (3).pdf (SECURED-Adobe Acrobat Reader DC File Edit View Window Help Home Tools cob-principles_of....x Sign In 433 (434 of 931) LG LG4 P9-17 Calculation of individual costs and WACC Dillon Labs has asked its financial Export PDF ^ ager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both. The firm's tax rate is 40%. Adobe Export PDF Convert PDF Files to Word or Excel Online Debt The firm can sell for $980 a 10-ycar, $1,000-par-valuc bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond. Select PDF File cob-princip...-14e (3).pdf × Preferred stock Eight percent (annual dividend) preferred stock having a par value of $100 can be sold for $65. An additional fee of $2 per share must be paid to the underwriters. Convert to Common stock The firm's common stock is currently selling for $50 per share. The dividend expected to be paid at the end of the coming year (2016) is $4. Its dividend payments, which have been approximately 60% of earnings per share in each of the past 5 years, were as shown in the following table. Microsoft Word (doo) Document Language English (U.S) Change Convert 2014 2013 2012 2011 $3.75 3.50 3.30 3.15 2.85 Create PDF Store and share files in the Document Cloud Learn More 8:24 AM O Type here to search 11/18/2017 2Explanation / Answer
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Number of Periods is 10 years hence NPER = 10 10 Present Value of the 10 year bond 980 Par Value Payment 10% Annual interest coupon rate 10% of 1000 = 100 100 Future Value (Par Value) 1000 Rate Use the excel rate function 10.330% Tax 40.000% a) After tax cost of the debt = Rate * (1 - Tax rate) 6.198% Dividend per annum = 8% = 0.08 * 100 = 8 8 can be sold for $65 65 Under writers fee per share 2 b) Cost of the preferred stock = Dividend / (sales price - extra fees) = 8/(65-2) = 8/63 12.70% Expected dividend N = 4 in year 2016 4 Present value as of year 2011 = 2.85 -2.85 Future Value as of the year 2015 is 3.75 3.75 Rate, g will be excel rate function 7.10% Common stock currently selles for $50 50 Buyer attraction less by $5 so adjust price by $5 5 Cost to get it floated in the stock exchange = $3 3 Proceeds in net = current sales price - adjusted price - floating cost = 50 - 5 - 3 = 42 42 Dividend per annum = $4 4 c) cost of the common stock = dividend / net proceeds + Rate = 4/42 + 7.10% = 16.626%Related Questions
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