A construction company has asked its chief financial officer to measure the cost of each specific form of capital as well as its weighted average cost of capital. The weighted average cost is measured using the following weights; 40% long-term debt, 10% preferred stock and 50% common stock equity. The company's tax rate is 40% Debt Company sells $980, a 10 year, $1,000 par value bond that pays a 10% coupon rate annually . Floatation cost is $35 of the per value and the bond is sold at discount of $20 per bond Preferred Stock : 8% preferred stock with par value of $100 is sold at $65 per share . In addition , the company has to pay an underwriting fee of $2 per share. Common stock : The current market value of the common stock is $50 per share . Next year , the dividend (2020 ) is 4 per share dividend payments , which have been approximately 60% of earnings per share in each of the last five years If the company decides to issue a new common equity , then the company must pay the the underpriced costs of $5 per share and floatation costs of $3 per share. From the above information what the before tax cost of debt ? what is the tax cost after debt ? what is the common stock if the Dividend growth was confiremd to be 7.2 percent ? how much is the cost of new common stock ? what is the cost of preffered stock if div 10$ value of shares 100$ and issuing cost is 2$ ? How much is the wacc before new shares are issued ? how much is the waxx after the new shares are issued ?
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
A construction company has asked its chief financial officer to measure the cost of each specific form of capital as well as its weighted average cost of capital. The weighted average cost is measured using the following weights; 40% long-term debt, 10%
How much is the wacc before new shares are issued ?
how much is the waxx after the new shares are issued ?
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