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7. Baratu desires to open a new plant that will require an investment of P5million. The firm has decided to finance the plant with a new issue preferred stock. Baratu's preferred stock outstanding that pays a dividend of P2.50 per share and which is trading for P35 per share. The investment banker has advised that cost of the newly issued preferred stock would be 7.7%. How much are the investment bankers charging in flotation costs?

7. Baratu desires to open a new plant that will require an investment of P5million. The firm has decided to finance the plant with a new issue preferred stock. Baratu's preferred stock outstanding that pays a dividend of P2.50 per share and which is trading for P35 per share. The investment banker has advised that cost of the newly issued preferred stock would be 7.7%. How much are the investment bankers charging in flotation costs?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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7. Baratu desires to open a new plant that will require an investment of P5million. The firm has decided to finance the plant with new issue preferred stock. Baratu's preferred stock outstanding that pays a dividend of P2.50 per share and which is trading for P35 per share. The investment banker has advised that cost of the newly issued preferred stock would be 7.7%. How much are the investment bankers charging in flotation costs? 8. Pita Corp. wants to calculate its weighted average cost of capital. The company's CFO has collected the following information: Dividend paid recently .....P2.00 per share * Growth rate - 6% * Stock price P 32.00 per share * Flotation cost - 10% * Bond YTM 9% * Tax rate - 30% * Target capital structure: 75% Equity; 25% Debt * 60% of the equity funds from retained earnings and 40% new stock issuances. What is the company's WACC? 9. Fether Foods is interested in calculating its weighted average cost of capital. The company's CFO has collected the following information: The target capital structure consists of 60% debt and 40% common stock * ● ● ● The company has a 15-year noncallable bonds with a par value of P1,000, a 11% annual coupon, and is selling now at 92-3/4. Equity flotation costs are 2% of par value The company's common stock has a beta of 0.80 The risk-free rate is 5%; and market risk premium is 4% The company's tax rate is 40%
Transcribed Image Text:7. Baratu desires to open a new plant that will require an investment of P5million. The firm has decided to finance the plant with new issue preferred stock. Baratu's preferred stock outstanding that pays a dividend of P2.50 per share and which is trading for P35 per share. The investment banker has advised that cost of the newly issued preferred stock would be 7.7%. How much are the investment bankers charging in flotation costs? 8. Pita Corp. wants to calculate its weighted average cost of capital. The company's CFO has collected the following information: Dividend paid recently .....P2.00 per share * Growth rate - 6% * Stock price P 32.00 per share * Flotation cost - 10% * Bond YTM 9% * Tax rate - 30% * Target capital structure: 75% Equity; 25% Debt * 60% of the equity funds from retained earnings and 40% new stock issuances. What is the company's WACC? 9. Fether Foods is interested in calculating its weighted average cost of capital. The company's CFO has collected the following information: The target capital structure consists of 60% debt and 40% common stock * ● ● ● The company has a 15-year noncallable bonds with a par value of P1,000, a 11% annual coupon, and is selling now at 92-3/4. Equity flotation costs are 2% of par value The company's common stock has a beta of 0.80 The risk-free rate is 5%; and market risk premium is 4% The company's tax rate is 40%
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