Start with the partial model in the file Ch11 P18 Build a Model.xlsx. The stock of Gao Computing sells for $70, and last year's dividend was $4.38. Security analysts are projecting that the common dividend will grow at a rate of 7% a year. A flotation cost of 11% would be required to issue new common stock. Gao's preferred stock sells for $21.74, pays a dividend of $2.20 per share, and new preferred stock could be sold with a flotation cost of 8%. The firm has outstanding bonds with 20 years to maturity, a 9% annual coupon rate, semiannual payments, and $1,000 par value. The bonds are trading at $839.54. The tax rate is 25%. The market risk premium is 6%, the risk-free rate is 6.5%, and Gao's beta is 1.2. In its cost-of-capital calculations, Gao uses a target capital structure with 40% debt, 10% preferred stock, and 50% common equity. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Round your answers to two decimal places.
Start with the partial model in the file Ch11 P18 Build a Model.xlsx. The stock of Gao Computing sells for $70, and last year's dividend was $4.38. Security analysts are projecting that the common dividend will grow at a rate of 7% a year. A flotation cost of 11% would be required to issue new common stock. Gao's
The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Round your answers to two decimal places.
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Calculate the cost of each capital component—in other words, the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the
cost of equity (ignoring flotation costs). Use both theCAPM method and the dividend growth approach to find the cost of equity.After-tax cost of debt fill in the blank 2 % Cost of preferred stock (including flotation costs) fill in the blank 3 % Cost of common equity, dividend growth approach fill in the blank 4 % (ignoring flotation costs) Cost of common equity, CAPM fill in the blank 5 % -
Calculate the cost of new stock using the dividend growth approach.
fill in the blank 6 %
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Assuming that Gao will not issue new equity and will continue to use the same target capital structure, what is the company's WACC?
fill in the blank 7 %
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