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Problem 1: A company issues 15-year, $1,000 par-value bonds, with coupon rate of 5%. The bonds are sold for $619.70. The tax rate is 30%. Evaluate the cost of debt before taxes and after taxes.

Problem 2: Assume a company issues common stock to the public for $25 a share. The anticipated dividend is $2.50 per share and the growth in dividends is 8%. When the flotation cost is 10% of the issue proceeds, evaluate the cost of external equity, re.

Problem 3: Evaluate the cost of preferred stock (rPS) with given information:

Par Value = $200
Current Price = $208
Flotation Cost = $16
Annual Dividend = 12% of Par

Problem 4: A firm anticipates earning $3.50 per share during the current year, its anticipated dividend payout ratio is 65%, its expected stable dividend growth rate is 6.0%, and its common stock currently sells for $32.50 per share. New stock can be sold to the public at the current price however a flotation cost of 5% would be acquired. What would be the cost of equity from new common stock (re)?

Problem 5: Assume you are informed that a company anticipates to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a stable rate of 5.50% a year, and the common stock currently sells for $52.50 share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure comprises 45% debt and 55% common equity. What is the company’s WACC if all equity used is from retained earnings?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M94236

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