Question: how do i work through this problem A firm has determined its optimal capital structure which is composed of the following sources and target market
A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Target Market Source of Capital Proportions Long-term debt 50% Preferred stock 10% Common stock equity 40% Debt: The firm can sell a 5-year, $1,000 par value, 7 percent bond for $850. Preferred Stock: The firm has determined it can issue preferred stock at $83 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: A firm's common stock is currently selling for $15 per share. The dividend expected to be paid at the end of the coming year is $1.50. Its dividend payments have a growth rate of 4%. It is expected that to sell, a new common stock issue must be underpriced $3 per share in flotation costs. Additionally, the firm's marginal tax rate is 40 percent. Kd - Kp = Ks = Kn= Long-term debt Preferred stock Common stock equity .50 .10 .40 WACC =
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
