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Problem: Ajax, Inc. is expecting to issue new 10-year, $1,000 par value bond priced at par with a coupon rate of 6% (annual coupon), and to issue new preferred stock with a $2.00 per share dividend at $20 a share. Common stock is currently selling for $25 a share. Ajax expects to pay a dividend of $2.50 per share next year, and a market analysis indicates dividends will grow at a constant rate of 3% per year. The marginal tax rate is 40%.
Required:
a) Calculate the after-tax cost of debt, the cost of preferred stock and the cost of common stock using the information above.
b) Ajax raises capital using a capital structure of 40% debt, 10% preferred stock and 50% common stock (e.g., market weights), what is the cost of capital for Ajax, Inc.?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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