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
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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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% |
| 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. |
| 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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