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1. haverty corp's bonds are selling to yield new investors a return of 9%, while it's preferred stock is yielding 11%. flotation costs are 10% of the proceeds of new issues sold to the public, and the firm's tax rate is 40%. the company just paid a dividend of $2.00 and is expected to grow at 6% indefinitely. its stock is selling for $21.20.
a. what is haverty's cost of debt?
b. what is haverty's cost of preferred stock?
c .
d. what is haverty's cost of retained earnings using the expected growth approach? what is haverty's cost of new equity?






2. fuller, inc. issued $100, 8% preferred stock five years ago. it is currently selling for $84.50. assuming fuller has to pay floatation costs of 10%, what is fuller’s cost of preferred stock?.


cost of preferred stock =





3. marginal cost of capital (lo5) the nolan corporation finds it is necessary to determine its marginal cost of capital. nolan’s current capital structure calls for 45 percent debt, 15 percent preferred stock, and 40 percent common equity. initially, common equity will be in the form of retained earnings (ke) and then new common stock (kn). the costs of the various sources of financing are as follows: debt, 5.6 percent; preferred stock, 9 percent; retained earnings, 12 percent; and new common stock, 13.2 percent.
a. what is the initial weighted average cost of capital? (include debt, preferred stock, and common equity in the form of retained earnings, ke.)
b. if the firm has $12 million in retained earnings, at what size capital structure will the firm run out of retained earnings?
c. what will the marginal cost of capital be immediately after that point? (equity will remain at 40 percent of the capital structure, but will all be in the form of new common stock, kn.)
d. the 5.6 percent cost of debt referred to above applies only to the first $18 million of debt. after that the cost of debt will be 7.2 percent. at what size capital structure will there be a change in the cost of debt?
e. what will the marginal cost of capital be immediately after that point? (consider the facts in both parts c and d.)






4. bond value (lo3) the lone star company has $1,000 par value bonds outstanding at 9 percent interest. the bonds will mature in 20 years. compute the current price of the bonds if the present yield to maturity is:
a. 6 percent.
b. 8 percent.
c. 12 percent.
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