A firm has determined its optimal capital structure which is composed of the following sources. Preferred Stock: The firm has determined it can issue preferred stock at RM75 per share par value. The stock will pay a RM10 annual dividend. The cost of issuing and selling the stock is RM3 per share. Common Stock: The firm's common stock is currently selling for RM18 per share. The dividend expected to be paid at the end of the coming year is RM1.74. Its dividend payments have been growing at a constant rate of 3% for the last four years. It is expected that to sell, a new common stock issue must be underpriced, with floatation costs of RM1 per share. Based on the above information, what is the firm's cost of preferred stock and cost of a new issue of common stock? Which of the two sources offers a lower cost? Show your workings.
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
what is the firm’s cost of
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