Calculate the after-tax cost of preferred stock, if a company is planning to sel
ID: 2798079 • Letter: C
Question
Calculate the after-tax cost of preferred stock, if a company is planning to sell $50 million of $4.25 cumulative preferred stock to the public at a price of $20 per share. Floatation costs are $1.50 per share. The company has a marginal tax rate of 35%.
13.54%
11%
21.25%
AB company has a beta of 1.05. If a 3 month Treasury bill's current yield is 3.5 percent and the expected return on the market is 11.25 percent, what is AB's cost of equity capital?
7.18%
8.14%
11.64%
You deposit $5000 into an account earning 10% annually. How much is in your account in 5 years?
You deposit $5000 into an account earning 10% annually. If interest is compounded quarterly, how much is in your account in 5 years?
15.31%
22.97%
13.54%
11%
21.25%
AB company has a beta of 1.05. If a 3 month Treasury bill's current yield is 3.5 percent and the expected return on the market is 11.25 percent, what is AB's cost of equity capital?
7.18%
8.14%
11.64%
You deposit $5000 into an account earning 10% annually. How much is in your account in 5 years?
You deposit $5000 into an account earning 10% annually. If interest is compounded quarterly, how much is in your account in 5 years?
15.31%
22.97%
Explanation / Answer
1.) After-Tax cost of Preferred Stock = DPS/CPS =4.25/(20-1.50) =22.97%
2.) Beta, B=1.05
Treasury Yield on 3-Months =3.50%
Market Return =11.25%
Cost of Equity Capital = Rf + Bx(Rm - Rf)
= 3.50 + 1.05x(11.25-3.50)
= 3.50 + 8.1375
= 11.64%
3.) Account in 5 years with annual compounding = $5,000 x (1+0.10)5 =$5,000 x 1.6105 =$8,052.55
If the interest is compounded quarterly, Quarterly interest rate =10/4 =2.50%
Account in 5 years with quarterly compounding = $5,000 x (1+0.025)5x4 =$5,000 x 1.6386 =$8,193.08
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.