The after-tax cost of debt using the bond's yield to maturity (YTM) is _____(Round to two decimal places.) The after-tax cost of debt using the approximation formula is_____(Round to two decimal places.) The cost of preferred stock is____ (Round to two decimal places.)
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Dillon Labs has asked its
Debt The firm can sell for $1030 a 13-year, $1,000-par-
Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the company wants to issue new common stock, it will sell them $3.50 below the current market price to attract investors, and the company will pay $2.00 per share in flotation costs.
- The after-tax cost of debt using the bond's yield to maturity (YTM) is _____(Round to two decimal places.)
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The after-tax cost of debt using the approximation formula is_____(Round to two decimal places.)
- The cost of preferred stock is____ (Round to two decimal places.)
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