The company typically pays flotation costs of 2% of the price on all newly issued securities. If the company is subject to a 28 percent marginal tax rate, what is the company’s after-tax, flotation-cost adjusted weighted average cost of capital? Show all steps and calculations clearly. Cost of preferred stock (in %):
Carbon Research Corporation currently has the following capital structure:
Bonds: 40,000 of the company’s 9.5% semi-annual coupon bonds outstanding (Par value = $1,000). These bonds are currently priced at $1,280 per bond and will mature in 20 years.
Common stock: The company has 2.5 million shares of common stock outstanding with a price of $26.00 per share. The company is expected to pay a $2.50 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever.
The company typically pays flotation costs of 2% of the price on all newly issued securities. If the company is subject to a 28 percent marginal tax rate, what is the company’s after-tax, flotation-cost adjusted weighted average cost of capital? Show all steps and calculations clearly.
- Cost of preferred stock (in %):
Clearly show the formula(s), values of all parts and the final answer. [Round the answer to 2 decimal places.]
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