Question

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NEED ANSWER ASAP / ANSWER NEVER USED BEFORE

a.)

Cost of Preferred Stock with Flotation Costs

Burnwood Tech plans to issue some $50 par preferred stock with a 6% dividend. A similar stock is selling on the market for $60. Burnwood must pay flotation costs of 7% of the issue price. What is the cost of the preferred stock? Round your answer to two decimal places.

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b.)

Cost of Equity: Dividend Growth

Summerdahl Resort's common stock is currently trading at $38 a share. The stock is expected to pay a dividend of $1.75 a share at the end of the year (D₁ = $1.75), and the dividend is expected to grow at a constant rate of 7% a year. What is the cost of common equity? Round your answer to two decimal places.

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c.)

Cost of Equity: CAPM

Booher Book Stores has a beta of 0.6. The yield on a 3-month T-bill is 5% and the yield on a 10-year T-bond is 6%. The market risk premium is 4.5%, and the return on an average stock in the market last year was 13%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.

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d.)

WACC

Shi Import-Export's balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 25%, r_d = 8%, r_ps = 9.1%, and r_s = 12%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Round your answer to two decimal places.

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Answer 1

а Fixed dividend = $50 x 6% = $3 Net proceeds = Market price - Floatation costs = $60 – (7% of $60) = $55.8 Cost of preferred stock (rps ) = Fixed dividend/Net proceeds = $3/$55.8 = 5.37% b PO = $38;D 1 = $1.75; g = 7%;rs =? rs=D 1/ PO+g= ($1.75/$38.00) + 0.07 = 11.60% rs= 11.60% c r s=r RF + bi (RPM) = 0.06+ 0.6(0.045) = 8.7% d Debt = 30%; Preferred Stock = 5%; Equity = 65%; rd=8%; T = 25%; r ps = 9.1%; rs = 12% WACC = (w d)(rd)(1-1) + (w ps (rps ) + (w ce(rs) WACC = 0.30(0.08)(1-0.25) + 0.05(0.09) + 0.65(0.12) = 10.05%