Suppose that you need to raise new financing for a large investment project. To keep your capital structure more-or-less close to the target, you decide to raise both debt and equity. Assume that the cost of floating a new bond issue will cost about 2% of the proceeds and new common stock will cost about 10% of the proceeds. you expect to pay $3.00 next year in dividends and grow them at roughly 2% for the foreseeable future. The firm’s tax rate is 21% you want to issue 20 year bonds with a $1,000 par value and a 9% coupon rate. you expect your stock to sell at$23 per share and your bonds to sell at par. What will the cost of equity and cost of debt (after-tax) be as a result of these new issues? What is the cost of capital if the target debt-equity ratio is 1.25?
Suppose that you need to raise new financing for a large investment project. To keep your capital structure more-or-less close to the target, you decide to raise both debt and equity. Assume that the cost of floating a new bond issue will cost about 2% of the proceeds and new common stock will cost about 10% of the proceeds. you expect to pay $3.00 next year in dividends and grow them at roughly 2% for the foreseeable future. The firm’s tax rate is 21% you want to issue 20 year bonds with a $1,000 par value and a 9% coupon rate. you expect your stock to sell at$23 per share and your bonds to sell at par. What will the
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