Pacific Intermountain Utilities Company has a present capital structure (which the company feels is optimal) of 55 percent long-term debt, 5 percent preferred stock, and 40 percent common equity. For the coming year, the company has determined that its optimal capital budget can be externally financed with $55 million of 12 percent first-mortgage bonds sold at par and $11 million of preferred stock costing the company 16 percent. The remainder of the capital budget will be financed with retained earnings. The company's common stock is presently selling at $16 a share, and next year's common dividend, D1, is expected to be $4 a share. The company has 27 million common shares outstanding. Next year's net income available to common stock (including net income from next year's capital budget) is expected to be $112 million. The company's past annual growth rate in dividends and earnings has been 7 percent. However, a 4 percent annual growth in earnings and dividends is expected for the foreseeable future. The company's marginal tax rate is 40 percent. Calculate the company's weighted cost of capital for the coming year. Round your answer to one decimal place. %
Pacific Intermountain Utilities Company has a present capital structure (which the company feels is optimal) of 55 percent long-term debt, 5 percent preferred stock, and 40 percent common equity. For the coming year, the company has determined that its optimal capital budget can be externally financed with $55 million of 12 percent first-mortgage bonds sold at par and $11 million of preferred stock costing the company 16 percent. The remainder of the capital budget will be financed with retained earnings. The company's common stock is presently selling at $16 a share, and next year's common dividend, D1, is expected to be $4 a share. The company has 27 million common shares outstanding. Next year's net income available to common stock (including net income from next year's capital budget) is expected to be $112 million. The company's past annual growth rate in dividends and earnings has been 7 percent. However, a 4 percent annual growth in earnings and dividends is expected for the foreseeable future. The company's marginal tax rate is 40 percent. Calculate the company's weighted cost of capital for the coming year. Round your answer to one decimal place. %
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
Related questions
Question
dont give hand written solution and dont use
Transcribed Image Text:Pacific Intermountain Utilities Company has a present capital structure (which the company feels is optimal) of 55 percent long-term debt, 5
percent preferred stock, and 40 percent common equity. For the coming year, the company has determined that its optimal capital budget can be
externally financed with $55 million of 12 percent first-mortgage bonds sold at par and $11 million of preferred stock costing the company 16
percent. The remainder of the capital budget will be financed with retained earnings. The company's common stock is presently selling at $16 a
share, and next year's common dividend, D1, is expected to be $4 a share. The company has 27 million common shares outstanding. Next year's
net income available to common stock (including net income from next year's capital budget) is expected to be $112 million. The company's past
annual growth rate in dividends and earnings has been 7 percent. However, a 4 percent annual growth in earnings and dividends is expected for
the foreseeable future. The company's marginal tax rate is 40 percent.
Calculate the company's weighted cost of capital for the coming year. Round your answer to one decimal place.
%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education