Calculate the cost of each capital component that is the after tax cost of debt the cost of preferred stock the cost of equity from retained earnings and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. Now calculate the cost of common equity from retained earnings, using the CAPM method What is the cost of new common stock based on the CAPM?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Calculating the WACC 2016
Current assets. 2,000
Net fixed assets. -3,000
Total assets. -5,000
Accounts payable and accrual. 900
Short term debt. 100
Long term debt. 1,100
Common stock (50,000 shares) 1,300
Retained earning 1,350
Total common equity. 2,650
Total liabilities and equity. 5,000
Sky earning per share last year were 3.20. The common stock sells for 55.00, last year dividend do was 2.10 and flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9% sky preferred stock pays a dividend of 3.30 per share and its preferred stock sells for 30.00 per share. The firm before tax cost of debt is 10% and its marginal tax rate is 35% the firm current outstanding 10% annual coupon rate is 6% and sky beta is 1.516. The firm total bent which is the sum of the company short-term debt and long term debt equal 1.2 million
Calculate the cost of each capital component that is the after tax cost of debt the cost of preferred stock the
Now calculate the cost of common equity from retained earnings, using the
What is the cost of new common stock based on the CAPM?
If sky continues to use the same market value capital structure what is the firms WACC assuming that it uses only retained earnings for equity? If it expand so rapidly that it must issue new common stock?
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