Answer:
a)
Credit rating of company is Aa3 and Pacific bell has similar
rating of As3 and YTM is 8.43%
So YTM of the company will be 8.43%
YTM = 8.43%
Tax rate = 35%
After tax cost of debt = 8.43% x (1-35%) = 5.4795%
After tax Cost of debt is 5.4795%
b)
Issue price of new preferred stock = 100
Flotation cost = 2
Annual dividend = 8%
Annual dividend payment = 100 x 8% = 8
Cost of preferred share = 8/(100-2) = 8.16%
Cost of preferred share is 8.16%
c)
Dividend paid on common equity = 4.50
Constatnt growth rate = 6.20%
Price of common stock = 60
Cost of common equity is calculated below by using DDM model:
Value of stock = Expected Dividend / (Cost of equity - Growth
rate)
60 = 4.50 / (cost of equity - 6.20%)
(cost of equity - 6.20%) = 4.50/60
Cost of equity = 13.7%
d)
Weight of common stock = 10%
Weight of debt = 50%
Weight of preferred stock = 40%
Now WACC is calculated below:
WACC = 50% x 5.4795%+ 10% x 13.70% + 40% x 8.16%
=2.73975%+ 1.37% + 3.264%
= 7.37
WACC of company is 7.37%
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 40 percent. Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation's earnings and dividends per share have increased about 7.2 percent annually and this should continue in the future. Northwest's common stock is selling at $62 per share, and the company will...
Northwest Utility Company faces increasing needs for capital, Fortunately, it has an Aa3 credit rating. The corporate tax rate is 35 percent Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capital budgeting projects Historically, the corporation's earnings and dividends per share have increased about 4.6 percent annually and this should continue in the future. Northwest's common stock is selling at $69 per share, and the company will...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 35 percent. Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation's earnings and dividends per share have increased about 9.3 percent annually and this should continue in the future. Northwest's common stock is selling at $81 per share, and the company will...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 40 percent. Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the proftability of capital budgeting projects. Historically, the corporation's eamings and dividends per share have increased about 7.2 percent annually and this should continue in the future. Northwest's common stock is selling at $62 per share, and the company will...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 40 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation’s earnings and dividends per share have increased about 8.6 percent annually and this should continue in the future. Northwest’s common stock is selling at $70 per share, and the company will...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 30 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation’s earnings and dividends per share have increased about 7.6 percent annually and this should continue in the future. Northwest’s common stock is selling at $68 per share, and the company will...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 35 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation’s earnings and dividends per share have increased about 6.2 percent annually and this should continue in the future. Northwest’s common stock is selling at $63 per share, and the company will...
Northwest Utility Company faces increasing needs for capital. Fortunately, thas an A3 credit rating. The corporate tax rate is 40 percent. Northwes's treasure is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation's earings and dividends per share have increased about 6.4 percent annualy and this should continue in the Mure. Northwest's common stock isseling at $73 pershare, and the company will pay a $4.50...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 30 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation’s earnings and dividends per share have increased about 9.6 percent annually and this should continue in the future. Northwest’s common stock is selling at $71 per share, and the company will...
Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 30 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects. Historically, the corporation’s earnings and dividends per share have increased about 9.2 percent annually and this should continue in the future. Northwest’s common stock is selling at $65 per share, and the company will...