Compute the costs of the following sources of financing for Doosan Babcock: a. A ($1,000) par value
Question:
Compute the costs of the following sources of financing for Doosan Babcock:
a. A \($1,000\) par value bond with a market price of \($985\) and a coupon interest rate of 12 percent. Flotation costs for a new issue would be approximately 6 percent of market price. The bonds mature in 12 years, and the marginal corporate tax rate is 17 percent.
b. A preferred stock selling for \($110\) with an annual dividend payment of \($9.\) The flotation cost will be \($8\) per share. The company’s marginal tax rate is 17 percent.
c. Retained earnings totaling \($5.2\) million. The price of the common stock is \($85\) per share, and dividend per share was \($10.70\) last year. The dividend is not expected to change in the future.
d. New common stock for which the most recent dividend was \($3.40.\) The company’s dividends per share should continue to increase at a 9 percent growth rate into the indefinite future. The market price of the stock is currently \($56;\) however, flotation costs of \($5\) per share are expected if the new stock is issued.
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Foundations Of Finance
ISBN: 9781292318738
10th Global Edition
Authors: Arthur Keown, John Martin, J. Petty