. If the company would be able to issue new 20-year debt with a cost of 10%, what is the after-tax component cost of the new debt? b. It can issue perpetual preferred stock at a price of $40 a share. The issue is expected to pay a constant annual dividend of $5.00 a share. The floatation cost on the issue is estimated to be 5 percent. What is the component cost of the new preferred stock?
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Plug N’ Play Inc. is considering financing a project as part of its regular capital budgeting process. The company wants to reevaluate its cost of capital for the upcoming projects. The company uses all the three components of capital for raising its fund; debt, preferred and common equity maintaining a target capital structure of 30%, 20%, and 50%. The company’s corporate tax is
40%. Based on the above information, answer the following questions:
a. If the company would be able to issue new 20-year debt with a cost of 10%, what is the after-tax component cost of the new debt?
b. It can issue perpetual
Step by step
Solved in 3 steps
