Pixieedust Telecommunications, Inc has the following target capital structure, which it considers to be optimal: debt = 25%, preferred stock = 15%, and common stock = 60%. PTI's tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. PTI paid dividend of $3.70 per share last year (D₁), and its stock currently sells at a price of $60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and beta is 1.3. The following terms would apply to new security offerings. Additional information: Preferred - New preferred could be sold to the public at a price of $100 per share, with a dividend of $9. Flotation costs of $5 per share would be incurred. Debt-Debt could be sold at an interest rate of 9%. Common-New common equity will be raised only by retaining earnings. b. Cost of preferred stock Δ
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Pixieedust Telecommunications, Inc has the following target capital structure, which it considers to be optimal: debt = 25%,
Additional information:
Preferred - New preferred could be sold to the public at a price of $100 per share, with
a dividend of $9. Flotation costs of $5 per share would be incurred.
Debt-Debt could be sold at an interest rate of 9%.
Common-New common equity will be raised only by
b. Cost of preferred stock
Δ
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