P9-17 (similar to) Question Help ▼ Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 50% long-term debt, 10% preferred stock, and 40% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%. Debt The firm can sell for $1005 a 18-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 3% of the par value is required. Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.69 dividend payment, Do, that the company just recently made. If the company wants to issue new new common stock, it will sell them $3.00 below the current market price to attract investors, and the company will pay $3.00 per share in flotation costs. a. The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.)

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted
average cost of capital. The weighted average cost is to be measured by using the following weights: 50% long-term debt, 10% preferred stock, and 40% common
stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%.
Debt The firm can sell for $1005 a 18-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 3% of the par value is required.
Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $5 per share must be paid to the
underwriters.
Common stock The firm's common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising
from $2.50 ten years ago to the $4.69 dividend payment, Do, that the company just recently made. If the company wants to issue new new common stock, it will sell
them $3.00 below the current market price to attract investors, and the company will pay $3.00 per share in flotation costs.
Ext
a. The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.)
Librai
alculat
click Check Answer.
esource Enter your answer in the answer box and
Check Answer
Clear All
Study
6.
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Transcribed Image Text:P9-17 (similar to) Question Help Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 50% long-term debt, 10% preferred stock, and 40% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%. Debt The firm can sell for $1005 a 18-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 3% of the par value is required. Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.69 dividend payment, Do, that the company just recently made. If the company wants to issue new new common stock, it will sell them $3.00 below the current market price to attract investors, and the company will pay $3.00 per share in flotation costs. Ext a. The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.) Librai alculat click Check Answer. esource Enter your answer in the answer box and Check Answer Clear All Study 6. parts remaining ication Tools > Type here to search
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