Century Distribution Company is planning a $100 million expansion of its chain of discount service stations to several neighboring parishes. This expansion will be financed as follows: Debt issued with a coupon interest rate of 15 percent. Thebonds have a 10-year maturity and a $1,000 face value, and they will be sold to net Century $990 after issue costs. Century’s marginal tax rate is 25 percent. 15% preferred stock having a par value of $100 can be sold for $95.00. An additional fee of $7.00 per share must be paid to the underwriters. Century’s common stock pays a dividend of $2 per share. New shares can be sold to net $14 per share. Century’s dividends are expected toincrease at an annual rate of 5 percent for the foreseeable future. Century’s capital structure is made up as follows: Debt $20 000,000 Preferred stock 5 000,000 Common equity 75 000,000 Calculate: Weighted Average Cost of capital for Century Ltd.
Century Distribution Company is planning a $100 million expansion of its chain of discount service stations to several neighboring parishes. This expansion will be financed as follows:
Debt issued with a coupon interest rate of 15 percent. Thebonds have a 10-year maturity and a $1,000 face value, and they will be sold to net Century $990 after issue costs. Century’s marginal tax rate is 25 percent.
15%
Century’s common stock pays a dividend of $2 per share. New shares can be sold to net $14 per share. Century’s dividends are expected toincrease at an annual rate of 5 percent for the foreseeable future.
Century’s capital structure is made up as follows:
Debt $20 000,000
Preferred stock 5 000,000
Common equity 75 000,000
Calculate:
Weighted Average Cost of capital for Century Ltd.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
