The current capital structure of stewart-line corporation is as follows: Bonds (7 %, $1000 par 15 years)
Question:
The current capital structure of stewart-line corporation is as follows:
Bonds (7 %, $1000 par 15 years) $75,000
Preferred stock ($100 par, 7.25% dividend) $1,000,000
Common stock:
Par value ($2.50 par) $500,000
Retained earnings $350,000
Total 850,000
Other information about stewart-line corportation:
The market price is $975 for the bonds, $60 for the preferred stock, and $21 for common stock. Flotation costs are 9% for bonds and 5% for preferred stock. The firm’s tax rate is 46%. Common stock will pay a $2.80 dividend which is not expected to grow.
- Calculate the weighted cost of capital using only internal common equity
- Why do we need to determine the firm’s overall weighted cost of capital and not just the individual component cost of capital?
Fundamental Managerial Accounting Concepts
ISBN: 978-0078110894
6th Edition
Authors: Edmonds, Tsay, olds