Calculate the cost of new common stock

Assignment Help Financial Accounting

Reference no: EM131205946

The allied group intends to expand the company's operation by making investments in several opportunities available to the group. Accordingly the group has identified a need for additional financing in preferred and new common stock and a new bond issues. The risk free-rate for the company is 7% and the appropriate tax rate is 40%. Also the beta coefficient for the company is 1.3 and he market risk premium is 12.

The company has been advised that new bonds can be sold on the market at par $1000 with an annual coupon of 8% for 30 years

Market analysis has determined that given the positive history of the firm new common stock can be sold at $29 per share with the last dividend being paid of $2.25 per share. The growth rate on any new common stock has been estimated at a constant rate of 15% per year for the next 3 years.

New preferred stock can be issued with an annual of 10% of par and is paid annually and currently would sell for $90 per share.

Using the CAPM discuss and calculate the cost of new common stock.

What would dividends yield as a percentage (i.e. Per dividend payment divided by the book value of a share of stock) today and a year from now if the growth rate is 12%?

What is the after tax component cost as a percentage (eg interest rate) of new debt today?

Reference no: EM131205946

Questions Cloud

Determine the voltmeter reading one time : Determine the voltmeter reading one time constant after the switch is closed. - Find the current iC two time constants after the switch is closed.

Explain current employee benefits to the lpns : Happy Trails' management team may engage in any number of activities during the unionization. Which of the following would you advise? Explain why or why not. Actively promote LPNs, offer bonuses, and place some into leadership and management role..

Explain maximum difference between assets and liabilities : Keeping in mind that the GAP limit is the maximum difference between assets and liabilities, set the GAP limit and formulate at least two GAP management strategies based on your selections.

Present a valuation model for corporate debt : Develop and present a valuation model for corporate debt with a face value of $70 million dollars. The model should use hypothetical assumptions for the coupon rate and other characteristics as well as a hypothetical market interest rate. You will..

Calculate the cost of new common stock : The allied group intends to expand the company's operation by making investments in several opportunities available to the group. Accordingly the group has identified a need for additional financing in preferred and new common stock and a new bond is..

Will the contract curve be a straight line : In the analysis of an exchange between two people, suppose both people have identical preferences. Will the contract curve be a straight line? Explain. Can you think of a counterexample?

Number of payments per period : When you increase the number of payments per period, why does the total cash payment times the number of payments in the period not equal the original single payment for the period?

Determine the voltmeter reading four time : Determine the voltmeter reading four time constants after the switch is closed.- Find the time that must pass before iC drops to 3 µA.

Design simple gap table and interactive graph for the sales : Develop a Windows Excel spreadsheet to design a simple GAP table and interactive graph for the Sales department.

User Account

All Pages