What is the cost of common stock for Foggy Futures Weather Forecasters? The firm is in the 40% tax bracket. The optimal capital structure is listed below: ​ Source of Capital Weight Long-Term Debt 25% Preferred Stock 20% Common Stock 55% ​ Debt: The firm can issue $1,000 par value, 8% coupon interest bonds with a 20-year maturity date. The bond has an average discount of $30 and flotation costs of $30 per bond. The selling price is $1,000. Preferred Stock: The firm can sell preferred stock with a dividend that is 8% of the current price. The stock costs $95. The cost of issuing and selling the stock is expected to be $5 per share. Common Stock: The firm’s common stock is currently selling for $90 per share. The firm expects to pay cash dividends of $7 per share next year. The dividends have been growing at 6%. The stock must be discounted by $7, and flotation costs are expected to amount to $5 per share. Retained Earnings: The firm expects to have enough retained earnings in the coming year to be used in place of any new stock being issued

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter17: Multinational Capital Structure And Cost Of Capital
Section: Chapter Questions
Problem 14QA
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What is the cost of common stock for Foggy Futures Weather Forecasters? The firm is in the 40% tax bracket. The optimal capital structure is listed below:

Source of Capital Weight
Long-Term Debt 25%
Preferred Stock 20%
Common Stock 55%

Debt: The firm can issue $1,000 par value, 8% coupon interest bonds with a 20-year maturity date. The bond has an average discount of $30 and flotation costs of $30 per bond. The selling price is $1,000.
Preferred Stock: The firm can sell preferred stock with a dividend that is 8% of the current price. The stock costs $95. The cost of issuing and selling the stock is expected to be $5 per share.
Common Stock: The firm’s common stock is currently selling for $90 per share. The firm expects to pay cash dividends of $7 per share next year. The dividends have been growing at 6%. The stock must be discounted by $7, and flotation costs are expected to amount to $5 per share.
Retained Earnings: The firm expects to have enough retained earnings in the coming year to be used in place of any new stock being issued.
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