1. ABC bond has a $1,000 par value (face value), a coupon rate of 8 percent, and matures in 10 years. A new issue of this bond would have a flotation cost of 5 percent of the $960 market value. The firms average and marginal tax rate is 25 percent.
2. A new common stock issue that paid a $3 dividend last year. The earnings per share have grown at a rate of 8 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend payout ratio of 40 percent. The price of this stock is now $50, but $4 flotation costs are anticipated.
3. Internal cost of equity where the current market price of the common stock is $50. The expected dividend this coming year should be $3.24, increasing thereafter at an 8 percent annual growth rate for foreseeable future. The corporations tax rate is 25 percent.
4. A preferred stock paying 10 percent dividend on a $100 par value. If a new issue is offered, flotation costs will be 8 percent of the current price of $125.