Kyle is raising funds for his company by selling preferred stock. The preferred stock has a...
Kyle is raising funds for his company by selling preferred stock. The preferred stock has a par value of $100 and a dividend rate of 6.0%. The stock is selling for $80.00 in the market. Kyle hires Wilson Investment Bankers to sell the preferred stock. Wilson charges a fee of 3% on the sale of preferred stock. What is the cost of preferred stock for Kyle using the investment banker?
What is the cost of preferred stock for Kyle using the investment banker?
Homework Answers
Cost of preferred stock can be calculated using the formula:
Cost of preferred stock = Annual Dividend/Current Price of share
Current price of the share needs to be adjusted for floatation cost.
Current Price = $80 * (1 - 3%) = $77.60
Annual dividend = 6% * $100 = $6
Cost of preferred stock = $6/$77.60 = 7.73%
Add Answer to:
Kyle is raising funds for his company by selling preferred stock. The preferred stock has a...
11.3 Cost of preferred stock. Kyle is raising funds for his company by selling preferred stock....
11.3 Cost of preferred stock. Kyle is raising funds for his company by selling preferred stock. The preferred stock has a par value of $94and a dividend rate of 9.6%. The stock is selling for $62.68 in the market. Kyle hires Wilson Investment Bankers to sell the preferred stock. Wilson charges a fee of 2% on the sale of preferred stock. What is the cost of preferred stock for Kyle using the investmentbanker? What is the cost of preferred stock for...
Fern has preferred stock selling for 93.3 percent of par that pays an 9.7 percent annual...
Fern has preferred stock selling for 93.3 percent of par that pays an 9.7 percent annual coupon (dividend rate). Assume the Par Value of the Preferred stock is $100. What would be Fern's component cost of preferred stock?
A. Calculate the after-tax cost of debt. b. Calculate the cost of preferred stock. c. Calculate t...
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
4. The cost of preferred stock Firms that carry preferred stock in their capital mix want...
4. The cost of preferred stock Firms that carry preferred stock in their capital mix want to not only distribute dividends to the company's common n stockholders but also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred stockholders. Consider the case of Purple Lemon Shipbuilders Inc. The CFO of Purple Lemon Shipbuilders Inc. has decided that the company needs to raise additional capital. It can...
Cost of preferred stock Taylor Systems has just issued preferred stock. The stock has an 8%...
Cost of preferred stock Taylor Systems has just issued preferred stock. The stock has an 8% annual dividend and a $100 par value and was sold at $99.50 per share. In addition, flotation costs of $1.50 per share must be paid. a. Calculate the cost of the preferred stock. b. If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost? c. Using the constant-growth valuation model, determine the...
4. The calculation of the cost of preferred stock Aa Aa Firms that carry preferred stock...
4. The calculation of the cost of preferred stock Aa Aa Firms that carry preferred stock in their capital mix want to not only distribute dividends to common stockholders but also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred stockholders. Consider the case of Peaceful Book Binding Company: Ten years ago, Peaceful Book Binding Company issued a perpetual preferred stock issue-called PS Alpha-that pays a...
A firm has a 5% dividend preferred stock with a par value of $25 issued and...
A firm has a 5% dividend preferred stock with a par value of $25 issued and outstanding. The stock is selling for $22 in the market today. The flotation costs of new preferreds are $1. If the firm is to issue new preferred shares at par to fund a portion of its new capital expenditures, what is the component cost of preferred stock for the company?
2. The valuation of preferred stock The formula for the valuation of a share of preferred...
2. The valuation of preferred stock The formula for the valuation of a share of preferred stock is P0=D/rs. In this equation, the variable D represents the (A.Coupon Payment on the share/ B.Annual dividend paid on the share/ C.Share's current Value). Riley is considering the purchase of 350 shares of the preferred stock of Marston Manufacturing Company. The stock carries a par value of $100 per share and an annual dividend rate of 4.25%. Alternative investments of comparable risk are...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Tumbull can raise all...
The treasurer of Kelly Bottling Company (a corporation) currently has $260,000 invested in preferred stock yielding...
The treasurer of Kelly Bottling Company (a corporation) currently has $260,000 invested in preferred stock yielding 10 percent. He appreciates the tax advantages of preferred stock and is considering buying $260,000 more with borrowed funds. The cost of the borrowed funds is 12 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 2 percent more for funds than the company will be earning on the investment...
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
Cost of preferred stock Taylor Systems has just issued preferred stock. The stock has an 8% annual dividend and a $100 par value and was sold at $99.50 per share. In addition, flotation costs of $1.50 per share must be paid. a. Calculate the cost of the preferred stock. b. If the firm sells the preferred stock with a 10% annual dividend and nets $90.00 after flotation costs, what is its cost? c. Using the constant-growth valuation model, determine the...
4. The calculation of the cost of preferred stock Aa Aa Firms that carry preferred stock in their capital mix want to not only distribute dividends to common stockholders but also maintain credibility in the capital markets so that they can raise additional funds in the future and avoid potential corporate raids from preferred stockholders. Consider the case of Peaceful Book Binding Company: Ten years ago, Peaceful Book Binding Company issued a perpetual preferred stock issue-called PS Alpha-that pays a...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Tumbull can raise all...
The treasurer of Kelly Bottling Company (a corporation) currently has $260,000 invested in preferred stock yielding 10 percent. He appreciates the tax advantages of preferred stock and is considering buying $260,000 more with borrowed funds. The cost of the borrowed funds is 12 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 2 percent more for funds than the company will be earning on the investment...
Most questions answered within 3 hours.
-
Do we typically carry antibodies against the RH antigen in our
blood plasma?
asked 7 minutes ago -
What are the differences between an antibiotic, a semisynthetic,
and a synthetic as types of antimicrobials?
asked 3 minutes ago -
Please answer ASAP 2) Choose a point at random from the unit
square [0, 1] ×...
asked 4 minutes ago -
Draw the Lewis structures and determine which of these
molecules has a central atom that unavoidably...
asked 4 minutes ago -
One mole of oxygen gas is at a pressure of 5.90 atm and a
temperature of...
asked 10 minutes ago -
The primary side of a transformer has 935 turns and is connected
to 118 Volts A/C....
asked 9 minutes ago -
This must be done in Java and it must contain a public static
void (string []args)...
asked 12 minutes ago -
An economy has a Cobb–Douglas production function:
Y=Kα(LE)1−αY=Kα(LE)1−α
The economy has a capital share of 0.30,...
asked 27 minutes ago -
60.0 mL of a silver chlorate solution with a concentration of
0.654 M is mixed with...
asked 32 minutes ago -
Asked if he has any regrets about the way he's handled the
coronavirus crisis so far,...
asked 43 minutes ago -
True or False?
Considering a door as a rigid body. Its angular motion happens
in a...
asked 47 minutes ago -
In
IUPAC naming, do we concider the prefix in alphabatizing?
In other words do we look...
asked 52 minutes ago