DE Inc.'s current (and optimal) capital structure is 40% debt, 10% preferred stock, and 50% common equity. CDE iscan issue up to $20,000,000 in new bonds at par with a 7% coupon rate; any subsequent amount must carry a 2% preadded risk. The firm has $21,000,000 in retained earnings for the current period. CDE's common stock trades at $98the common stock at t₁ is$1. Floatation costs on a new common stock issue is $2 per share. The company is growingWhat is the cost of equity from new common stock?If the answer is 10.45%, enter 10.45

Price of common stock = $98Expected dividend per share = $1Flotation cost = $2Growth rate = 11% Cost…

Answered: DE Inc.'s current (and optimal) capital…

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

Problem 1PS

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Blooming Ltd. currently has the following capital structure: Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years. Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely. Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 149%. Company tax rate is 30%. Required: Complete the following tasks: a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 99%6. c) Calculate the current value of the preferred share if the average retum of the shares in the same industry is 12% d) Calculate the current market…
Levy's company has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. Calculate the following if the company has a tax rate of 36 percent: Total Market Value for the Firm , After-tax cost of Debt, Cost of Equity , Cost of Preferred Stock, Weighted Average Cost of Capital. Please note that the total market value, After-tax cost of Debt, Cost of Equity and Cost of Preferred Stock should all be calculated in dollar value and NOT percentages. do not use excel formulas. show all workings
Cotton On Ltd. currently has the following capital structure:Debt: $3,500,000 par value of outstanding bond that pays annually 10% coupon rate with an annualbefore-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20years.Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each shareis $100. The firm plan just paid a $8.50 dividend per share. The firm is maintaining 4% annual growthrate in dividends, which is expected to continue indefinitely.Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividendrate of 12%.The firm's marginal tax rate is 30Calculate the current price of the preferred share if the average return of the shares in the sameindustry is 10%
Cotton On Ltd. currently has the following capital structure: Debt: $3,500,000 par value of the outstanding bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20 years. Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each share is $100. The firm plan just paid an $8.50 dividend per share. The firm is maintaining 4% annual growth rate in dividends, which is expected to continue indefinitely. Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 12%. The firm's marginal tax rate is 30%. Required: Calculate the current price of the preferred share if the average return of the shares in the same industry is 10%
Consider Higgins Production which has the following information about its capital structures:Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently sellingfor $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate.Required: Calculate the following if the company has a tax rate of 36 percent. Total Market Value for the Firm After-tax cost of Debt Cost of Equity Cost of Preferred Stock Weighted Average Cost of Capital

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