The extract of the capital structure on the Statement of Financial Position of Nelson Inc. for...

 

Transcribed Image Text:

The extract of the capital structure on the Statement of Financial Position of Nelson Inc. for the year ended 2018 is shown as below: Statement of Financial Position for the year ended 31 December 2018 Total (S) Bonds (zero coupon, $1,000 par, 5-year maturity) Preferred stock ($100 par, 6% dividend) Common stock ($10 par) 3,000,000 900,000 980,000 4,880,000 Market prices per bond/share are $710 for bonds, $96 for preferred stock, and $35 for common stock, respectively. There will be sufficient internal common equity funding (i.e. retained earnings) available such that the firm does not plan to issue new common stocks. Assume the cost of internal equity is the same as issuing new common stock without consideration of the associated floatation costs. Dividends just paid for common stock were $2.50 last year and are projected to have an annual growth rate of 6%. The firm is in a 34% tax bracket. What is the weighted average cost of capital (WACC) of the company? The extract of the capital structure on the Statement of Financial Position of Nelson Inc. for the year ended 2018 is shown as below: Statement of Financial Position for the year ended 31 December 2018 Total (S) Bonds (zero coupon, $1,000 par, 5-year maturity) Preferred stock ($100 par, 6% dividend) Common stock ($10 par) 3,000,000 900,000 980,000 4,880,000 Market prices per bond/share are $710 for bonds, $96 for preferred stock, and $35 for common stock, respectively. There will be sufficient internal common equity funding (i.e. retained earnings) available such that the firm does not plan to issue new common stocks. Assume the cost of internal equity is the same as issuing new common stock without consideration of the associated floatation costs. Dividends just paid for common stock were $2.50 last year and are projected to have an annual growth rate of 6%. The firm is in a 34% tax bracket. What is the weighted average cost of capital (WACC) of the company?