Last year Power Electric Industries earned $3.80 earnings per share. Common stock sold for $65.00, the last approved dividend was $2.50 per share, and a 9% float cost would require selling new common stock. Financial analysts project that the dividend from common stock will increase at an annual rate of 10%. Power Electric Industries preferred stock pays a dividend of $3.90 per share and sells for $50.00 each. The company's pre-tax cost of debt is 13% and its marginal tax rate is 34%. The company's outstanding long-term debt bears a rate of 10% annually and is sold at face value. The market risk premium is 4%, the risk-free rate is 5%, and the firm's beta is 1.43. The company's total debt amounts to $1.7 million.

 
Calculate the cost of each component of equity, including the after-tax cost of debt, the cost of newly issued common stock, the cost of preferred stock, and the cost of retained earnings capital. To determine the cost of common stock, you must use the discounted cash flow (DCF) method

Answer rating: 100% (QA)

Cost of Capital for Power Electric Industries We can calculate the cost of each component of equity ... View the full answer