Capital structure-what is the cost of external equity

Assignment Help Financial Management

Reference no: EM131338141

Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:

Debt: Capital can be raised through bank loans at a pretax cost of 8.5%. Also, bonds can be issued at a pretax cost of 10%.

Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $59. Flotation costs will be $3 per share. The recent common stock dividend was $3.15. Dividends are expected to grow at 7% in the future.

What is the cost of external equity?

12.3%

10%

12.6%

12.7%

13%

Reference no: EM131338141

Questions Cloud

Review toavs ideas of governance timeline : you will analyze the influence of seminal thinkers and events on public policy and administration concepts and processes. Dwight Toavs' Timeline on Ideas of Governance is designed to "foster an appreciation of the evolution and development of idea..

Dividend is expected to grow at a rate : Stock ABC just paid a $ 1 dividend yesterday. The dividend is expected to grow at a rate of 25% for the next 3 years when the required return is 15%. After that, from year 4 and thereafter (forever), the expected dividend growth rate will be 5% and t..

Complete and submit the university of phoenix material : Comm 102- Complete and Submit the University of Phoenix Material: Source Evaluation Matrix for two sources that you will use.

Program that reads the amount of a monthly mortgage payment : Assume that the annual interest rate is 7.49 percent. Use a named constant for the inter-est rate. Note that payments are made monthly, so the interest is only one twelfth of the annual interest of 7.49 percent.

Capital structure-what is the cost of external equity : Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments: What is the cost..

Fundamental factors that affect the cost of money : What are the four fundamental factors that affect the cost of money? What are some economic conditions that influence interest rates? Include examples of how these economic conditions affect interest rates.

Identify factors that are impacting their business model : Identify factors that are impacting their business model and take a stance on whether these factors signal imminent doom or new growth opportunities.

What is the current share price-growth rate in dividends : Bayou Okra Farms just paid a dividend of $3.70 on its stock. The growth rate in dividends is expected to be a constant 7 percent per year indefinitely. Investors require a return of 16 percent for the first three years, a return of 14 percent for the..

What is the problem that makes it worth studying : You may be familiar with Bloom's Taxonomy of critical thinking. The revised version is described in three links in this week's Learning Resources. Each of the three links provides a different slant, visual, and list of resources. In everything yo..

User Account

All Pages