Given the following information: Percent of capital structure: Preferred stock 15 % Common equity (retained earnings)...
Given the following information:
Percent of capital structure:
| Preferred stock | 15 | % |
| Common equity (retained earnings) | 55 | |
| Debt | 30 | |
Additional information:
| Corporate tax rate | 35 | % | |
| Dividend, preferred | $ | 10.00 | |
| Dividend, expected common | $ | 5.50 | |
| Price, preferred | $ | 106.00 | |
| Growth rate | 8 | % | |
| Bond yield | 10 | % | |
| Flotation cost, preferred | $ | 6.50 | |
| Price, common | $ | 89.00 | |
Homework Answers
Component %
Preferred stock 15%
Common equity 55%
Debt 30%
Debt
Bond yield 10%
Tax rate 35%
Post tax cost of debt 6.50%
Common Equity
Price 89
Dividend 5.5
Growth rate 8%
Cost of common equity 14.67%
Preferred stock
Price 106
Flotation cost 6.5
Preferred dividend 10
Cost of preferred stock 10.05%
Component % Cost
Preferred stock 15% 10.05%
Common equity 55% 14.67%
Debt 30% 6.50%
Total 100%
WACC 11.53%
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