1. RET has the following capital structure, which is considers to be optima: Debt 25%, preferred stock 15%, Common equity 60% RET expected net income this year is $34285.72. Its established dividend pay-out ratio is 30%, its federal plus state tax is 40% and investors expect earnings and dividends to grow at a rate of 9% constant in the future. RET paid a dividend of $3.60 per share last year, and its stocks currently sells at a price of $54 per share. RET can obtain new capital in the following ways: New preferred stock with a dividend of $11 can be sold to the public at price of $95 per share. са New debt can be sold at an interest rate of 12%. (a) Determine the cost of each capital structure Component. (b) Calculate the WACC.
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
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