Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow at 8% per year for the foreseeable future. The current stock price is $54. New shares could be sold for the same price, but flotation costs would amount to $6 per share. Also, the firm can issue 20-year, $1,000 par bonds at a pre-tax cost of 11.4%. The firm's tax rate is 34%. What is the firm's cost of capital if their capital structure consists of 60% external equity and 40% bonds? Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow at 8% per year for the foreseeable future. The current stock price is $54. New shares could be sold for the same price, but flotation costs would amount to $6 per share. Also, the firm can issue 20-year, $1,000 par bonds at a pre-tax cost of 11.4%. The firm's tax rate is 34%. What is the firm's cost of capital if their capital structure consists of 60% external equity and 40% bonds?
Expert Answer:
Answer rating: 100% (QA)
Here Weight of External Equity 60 Weight of Bonds 40 PreTax Co... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
Students also viewed these accounting questions
-
Based on a comparison of China, India and African countries, discuss the impact of globalization in the three cases: what policies have led some states to be successful in achieving growth and...
-
The following percentages were computed using figures from recent annual reports of Weis Markets, a large grocery store chain, and Sprint Nextel Corporation, a provider of telecommunication services:...
-
The following table gives recent figures for yield per acre in Illinois and Kansas: a. If we assume that farmers in Illinois and Kansas use the same amount of labor, capital, and fertilizer, which...
-
5 Question 42 (2.5 points) Consider a put option that gives the long position the right to sell the underlying asset for $12.34 in 5.67 years. The continuously compounded risk free rate of interest...
-
From what you know in a general way about electron affinities, state which member of each of the following pairs has the greater negative value: (a) As, Br (b) F, Li.
-
Under what conditions are the Exempt Model and Pension Model equivalent? Under what conditions would one model perform better than the other? How does the \($6,500\) limitation on deductible and Roth...
-
What is the hedonic wage function? What does the slope of the hedonic wage function measure?
-
Avantronics is a manufacturer of electronic components and accessories, with total assets of $20,000,000. Selected financial ratios for Avantronics and the industry averages for firms of similar size...
-
You work in finance and your company is considering buying another company for $10.6 million. Your company does not have $10.6 million in cash and has asked you to evaluate different types of...
-
What is a specific police department impacted by a recent legislative actions, court decisions, regulatory and statutory changes, and laws and ordinances? Analyze how the legislative actions, court...
-
Historical Realized Rates of Return Stocks A and B have the following historical returns: Year 2012 -21.20% -12.00% 2013 24.75 29.50 2014 16.25 20.50 2015 -1.25 -14.30 2016 31.00 25.85 Calculate the...
-
In June 2018, Bernard Ramish set up a $48,000 trust fund through West Plains Credit Union to provide tuition for his nephew, Nathan Covacek, to attend Tri-State Polytechnic Institute. The trust was...
-
Bill is the pharmacy owner and PIC at Bills Pharmacy. The state Bills pharmacy is in has a freedom of choice law regarding third-party plans. You have been a long-time customer of Bills and you...
-
The following situations are similar, but each represents a variation of a particular crime. Identify the crime and point out the differences in the variations. 1. Chen, posing fraudulently as...
-
Heesham Broussard obtained counterfeit money instruments. To distribute them, he used account information and numbers on compromised FedEx accounts procured from hackers. Text messages from Broussard...
-
Using your state laws and rules, how does your state regulate LTCFs regarding pharmacies and/or pharmacists? Are these laws and regulations under the states pharmacy practice act or in another set of...
-
PARTICIPATION ACTIVITY 4.15.8: Complete the program to verify that a string contains a valid integer value. Complete the following program to verify that a string contains a valid integer value. 1...
-
Refer to the table to answer the following questions. Year Nominal GDP (in billions) Total Federal Spending (in billions) Real GDP (in billions) Real Federal Spending (in billions) 2000 9,817 578...
-
Business Taxes: In this exercise, suppose that your hamburger business McWendys has a homothetic decreasing returns to scale production function that uses labor and capital k to produce hamburgers x...
-
Suppose there are three different goods: cans of Coke (x1), cups of coffee (x2) and cans of Pepsi (x3). A. Suppose each of these goods costs the same price p and you have an exogenous income I (a)...
-
I hate grits so much that the very idea of owning grits makes me sick. I do, on the other hand, enjoy a good breakfast of Coco Puffs Cereal. A: In each of the following, put boxes of grits on the...
-
Explain how the financial manager might use industry norms in the design of the companys financing mix.
-
You have developed the following income statement for Sing-Tel Corporation. It represents the most recent years operations, which ended yesterday. Your supervisor in the controllers office has just...
-
Footwear, Inc. manufactures a complete line of mens and womens formal shoes for independent merchants. The average selling price of its finished product is \($85\) per pair. The variable cost for...
Study smarter with the SolutionInn App