A firm has determined its optimal capital structure which is composed of the following sources: and target market value proportions. DEBT: The firm can sell a 12‑year, 7%, P1,000 par value share for Php 960. A flotation cost of 2% of the face value would be required upon the issuance of the bond. Additionally, the firm's marginal tax rate is 40 percent. PREFERRED STOCK: The firm has determined it can sell preferred stock at Php 75 per share par value. The stock will pay a Php 5.76 annual dividend. The cost of issuing and selling the stock (flotation costs) is Php 3 per share. COMMON STOCK: A firm's common stock is currently selling for Php 18 per share. The dividend expected to be paid at the end of the coming year is Php 1.74. Its dividend payments have been growing at a constant rate of 3%. It is expected that to sell a new common stock issue must be underpriced by Php1 per share in flotation costs. Ignoring the cost of new issue of common stock, how much is the weighted average cost of capital based on the following sources of capital and proportions: Source of capital Target market Proportions (%) _______________________________________________ Long‑term debt 20% Preferred stock 10 Common stock equity 70
A firm has determined its optimal capital structure which is composed of the following sources: and target market value proportions.
DEBT: The firm can sell a 12‑year, 7%, P1,000 par value share for Php 960. A flotation cost of 2% of the face value would be required upon the issuance of the bond. Additionally, the firm's marginal tax rate is 40 percent.
COMMON STOCK: A firm's common stock is currently selling for Php 18 per share. The dividend expected to be paid at the end of the coming year is Php 1.74. Its dividend payments have been growing at a constant rate of 3%. It is expected that to sell a new common stock issue must be underpriced by Php1 per share in flotation costs.
Ignoring the cost of new issue of common stock, how much is the weighted average cost of capital based on the following sources of capital and proportions:
Source of capital Target market
Proportions (%)
_______________________________________________
Long‑term debt 20%
Preferred stock 10
Common stock equity 70
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