Carbon Research Corporation currently has the following capital structure:   Bonds: 40,000 of the company’s 9.5% semi-annual coupon bonds outstanding (Par value = $1,000). These bonds are currently priced at $1,280 per bond and will mature in 20 years.   Preferred shares: The company has an issue of 1.2 million preferred shares outstanding with a market price of $10.95. The preferred shares offer an annual dividend of $1.05.   Common stock: The company has 2.5 million shares of common stock outstanding with a price of $26.00 per share. The company is expected to pay a $2.50 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever.   The company typically pays flotation costs of 2% of the price on all newly issued securities.   If the company is subject to a 28 percent marginal tax rate, what is the company’s after-tax, flotation-cost adjusted weighted average cost of capital? Show all steps and calculations clearly.   Present all parts of answers as instructed below.   Cost of Debt (in %): Clearly show the formula(s), values of all parts and the final answer.

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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Carbon Research Corporation currently has the following capital structure:

 

Bonds: 40,000 of the company’s 9.5% semi-annual coupon bonds outstanding (Par value = $1,000). These bonds are currently priced at $1,280 per bond and will mature in 20 years.

 

Preferred shares: The company has an issue of 1.2 million preferred shares outstanding with a market price of $10.95. The preferred shares offer an annual dividend of $1.05.

 

Common stock: The company has 2.5 million shares of common stock outstanding with a price of $26.00 per share. The company is expected to pay a $2.50 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever.

 

The company typically pays flotation costs of 2% of the price on all newly issued securities.   If the company is subject to a 28 percent marginal tax rate, what is the company’s after-tax, flotation-cost adjusted weighted average cost of capital? Show all steps and calculations clearly.

 

Present all parts of answers as instructed below.

 

  1. Cost of Debt (in %):

Clearly show the formula(s), values of all parts and the final answer. 

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