Newman International has an optimal capital structure that consists of 35.00% debt, 15.00% preferred equity, and 50.00% common equity. Their new bond issue will have a coupon rate of 7.20%. Their preferred stock currently sells for $40 per share, and floating new shares would cost $2.00 per share. The preferred dividend is fixed at $2.60 annually. Newman’s common stock has a current market price of $33.00, and floating new common shares would cost Newman 6.00% of the share price. The most recent annual common dividend paid was $2.50, and the dividend is expected to grow at an annual rate of 5.00%. The firm’s marginal tax rate is 30.00%. Use these data to calculate Newman’s after-tax cost of debt. Calculate the percentage to 2 decimal places (0.03148 = 3.15) 6
Newman International has an optimal capital structure that consists of 35.00% debt, 15.00% preferred equity, and 50.00% common equity. Their new bond issue will have a coupon rate of 7.20%. Their
Use these data to calculate Newman’s after-tax cost of debt. Calculate the percentage to 2 decimal places (0.03148 = 3.15)
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