Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost
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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: longterm debt, preferred stock, and common stock equityretained earnings, new common stock, or both The firm's tax rate is
Debt The firm can sell for $ a year, $ comma parvalue bond paying annual interest at a coupon rate. A flotation cost of of the par value is required.
Preferred stockannual dividend preferred stock having a par value of $ can be sold for $ An additional fee of $ per share must be paid to the underwriters.
Common stockThe firm's common stock is currently selling for $ per share. The stock has paid a dividend that has gradually increased for many years, rising from $ ten years ago to the $ dividend payment, Upper D that the company just recently made. If the company wants to issue new new common stock, it will sell them $ below the current market price to attract investors, and the company will pay $ per share in flotation costs.
aCalculate the aftertax cost of debt.
bCalculate the cost of preferred stock.
cCalculate the cost of common stockboth retained earnings and new common stock
dCalculate the WACC for Dillon Labs.
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Part
aThe aftertax cost of debt using the bond's yield to maturityYTM is
enter your response hereRound to two decimal places.
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