Andover, Inc has the following capital structure: Assets $ 500,000 $ 125,000 Debt Preferred stock 50,000 Common stock 325,000 The common stock is currently selling for $17 a share, pays a cash dividend of $0.90 per share, and is growing annually at 8 percent. The preferred stock pays a $8 cash dividend and currently sells for $92 a share. The debt pays interest of 8.0 percent annually, and the firm is in the 30 percent marginal tax bracket. a. What is the after-tax cost of debt? Round your answer to two decimal places. b. What is the cost of preferred stock? Round your answer to two decimal places. c. What is the cost of common stock? Assume that the current $0.90 dividend grows by 8 percent during the year. Round your answer to two decimal places.
Andover, Inc has the following capital structure: Assets $ 500,000 $ 125,000 Debt Preferred stock 50,000 Common stock 325,000 The common stock is currently selling for $17 a share, pays a cash dividend of $0.90 per share, and is growing annually at 8 percent. The preferred stock pays a $8 cash dividend and currently sells for $92 a share. The debt pays interest of 8.0 percent annually, and the firm is in the 30 percent marginal tax bracket. a. What is the after-tax cost of debt? Round your answer to two decimal places. b. What is the cost of preferred stock? Round your answer to two decimal places. c. What is the cost of common stock? Assume that the current $0.90 dividend grows by 8 percent during the year. Round your answer to two decimal places.
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
Section: Chapter Questions
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Transcribed Image Text:Andover, Inc has the following capital structure:
Assets $ 500,000
Debt
$ 125,000
Preferred stock
50,000
Common stock
325,000
The common stock is currently selling for $17 a share, pays a cash dividend of $0.90 per share, and is
growing annually at 8 percent. The preferred stock pays a $8 cash dividend and currently sells for $92
a share. The debt pays interest of 8.0 percent annually, and the firm is in the 30 percent marginal tax
bracket.
a. What is the after-tax cost of debt? Round your answer to two decimal places.
b. What is the cost of preferred stock? Round your answer to two decimal places.
c. What is the cost of common stock? Assume that the current $0.90 dividend grows by 8
percent during the year. Round your answer to two decimal places.
d. What is the firm's weighted-average cost of capital? Round your answer to two decimal
places.
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