Lemur Companys $10 par value common stock currently sells at $100 per share. Lemur has retained earnings
Question:
Lemur Company’s $10 par value common stock currently sells at $100 per share. Lemur has retained earnings of $100,000; once this is exhausted, Lemur will raise any more necessary equity capital through a stock issue. Lemur can raise cash by selling common stock at a $2 per share discount with a $3 per share floatation cost. Annual cash dividends are $7 per share and are not expected to change. The estimated after-tax cost of funds raised by long-term bonds is 5%. The estimated cost of funds raised by preferred stock is 6%. Lemur’s preferred capital structure is 30% long-term debt, 20% preferred stock, and 50% common stock. Not counting the $100,000 of retained earnings, the current capital structure is Lemur’s preferred structure.
What would be Lemur’s cost of funds from a common stock sale?
Horngrens Financial And Managerial Accounting The Financial Chapters
ISBN: 9780134486840
6th Edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura