Question

9-16 Cost of capital   Edna Recording​ Studios, Inc., reported earnings available to common stock of ​$4,000,000 last year. From those​ earnings, the company paid a dividend of ​$1.32 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35​% ​debt, 25​% preferred​ stock, and 40​% common stock. It is taxed at a rate of 23​%. a.  If the market price of the common stock is ​$35 and dividends are expected to grow at a rate of 6​% 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 ​$6 per​ share, what is the​ company's cost of new common stock financing​? c.  The company can issue ​$2.45 dividend preferred stock for a market price of ​$34 per share. Flotation costs would amount to ​$4 per share. What is the cost of preferred stock financing​? d.  The company can issue ​$1,000​-par-value, 6​% ​coupon, 9​-year bonds that can be sold for ​$1,210 each. Flotation costs would amount to ​$40 per bond. Use the estimation formula to figure the approximate​ after-tax cost of debt​ financing? e.  What is the WACC​?

Please post excel formula if used or written formula if you can

Answer 1

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ke Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins Trace Precedents Show Formulas fx Define Name Calculate Now Trace Dependents Error Checking PUse in Formula Calculation a Calculate Sheet Insert AutoSum Recently Financial Logical Used Тext Date & Lookup & Time Reference & Trig Functions Manager Create from Selection Math More Name Watch Remove Arrows Evaluate Formula Function Window Options Calculation Formula Auditing Function Library Defined Names GZ508 GW GR GS GT GU GV GX GY GZ 498 DO 1.32, g 6%, PO = 35, f = 6 D1 D0*(1+g) 1.32* (1+0.06) 499 1.3992 500 kr D1/POg = Kr 1.3992/35 0.06 501 COST OF RETAINED EARNINGS 502 10.00% (BASED ON RETAINED EARNINGS) a 503 ke D1/PO g= 504 COST OF NEW COMMON STOCK Ke 1.3992/(35-6)+ 0.06 505 10.82% 506 kp DIVIDEND/(PRICE -f) 507 COST OF PREFERRED STOCK C Kp 2.45/(34-4) 8.17% 508 509 COST OF DEBT 6% C-60 COUPON 510 9n 9 511 YEARS 512 NET ISSUE PRICE 1210-40 = 1170 P -1170 513 FV 1000 M 1000 23% 514 ТАX (C(M-P/n))/(M + P)/2 515 YTM APPROXIMATION FORMULA 3.79% [=(60+((1000-1170)/9)/(1170+1000)/2)] 2.92% (3.79%(1-0.23)) kd (BEFORE TAX) = 516 Kd (AFTER TAX) = 517 518 DIR right UTILITY, SHARPE, beta DGM beta SANDRINE RO КЕ САРМ LEASING PV, FV, ANNUITY YIELD bond portfolio clean WACC cONvexity port future INDEX INTL CAP BUD Rea erences: GZ39 120% WA 06:18 ENG 27-11-2019

ke Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins Trace Precedents Show Formulas Define Name fx Calculate Now Trace Dependents Error Checking PUse in Formula Calculation Calculate Sheet AutoSum Recently Financial Logical Used Insert Тext Date & Lookup & Time Reference & Trig Functions Manager Create from Selection Math More Name Watch Remove Arrows Evaluate Formula Window Function Options Defined Names Formula Auditing Calculation Function Library fox GT532 GR GS GT GU GV GW GX GY GZ kd (BEFORE TAX) 3.79% [-(60+((1000-1170)/9))/(1170+1000)/2)] 2.92% (3.79%(1-0.23)) 516 517 Kd (AFTER TAX) = 518 519 WACC (RETAINED EARNINGS) e 520 COC(%) WEIGHTED COST 521 SOURCE WEIGHT 2.92% 1.02% 522 DEBT 35% 8.17% 2.04% 523 PREFERRED STOCK 25% 40% 10.00% 4.00% 524 COMMON STOCK WACC= 7.06% 525 526 527 WACC (NEW COMMON STOCK) 528 529 СоС(%6) SOURCE WEIGHTED COST 530 WEIGHT 2.92% 35% 1.02% 531 DEBT 25% 8.17% 2.04% 532 PREFERRED STOCK 10.82% 40% 4.33% 533 COMMON STOCK 7.39% 534 WACC = 535 536 UTILITY, SHARPE, beta DGM beta SANDRINE LEASING PV, FV, ANNUITY RO КЕ САРМ clean port future INDEX DIR right YIELD bond portfolio WACC cONvexity INTL CAP BUD erences: GZ38 Rea 120% WA XУ 06:19 6 T ENG 27-11-2019