What is the company cost of new common stock financing

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Reference no: EM132041834

Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,200,000 last year. From those earnings, the company paid a dividend of $1.23 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 20% preferred stock and 45% common stock. It is taxed at a rate of 30%.

a. If the market price of the common stock is $30 and dividends are expected to grow at a rate of 8% per year for the foreseeable future, what is the company's cost of retained earnings financing ?

b. If underpricing and flotation costs on new shares of common stock amount to $9 per share, what is the company's cost of new common stock financing ?

c. The company can issue $2.26 dividend preferred stock for a market price of $35 per share. Flotation costs would amount to $5 per share. What is the cost of preferred stock financing ?

d. The company can issue $1,000-par-value, 12% coupon, 15?-year bonds that can be sold for $1,250 each. Flotation costs would amount to $30 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing?

e. What is the WACC??

a. If the market price of the common stock is $30 and dividends are expected to grow at a rate of 8% per year for the foreseeable future, the company's cost of retained earnings financing is %. (Round to two decimal places.) "Round to two decimal places for a through e"

Reference no: EM132041834

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