The floatation costs for issuing common stock, preferred stock, and debt are 4%, 2% and 3%,...
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The floatation costs for issuing common stock, preferred stock, and debt are 4%, 2% and 3%, respectively. The firm plans to maintain the same capital structure. Including flotation costs in the analysis, by how much does the NPV decrease? Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent. The floatation costs for issuing common stock, preferred stock, and debt are 4%, 2% and 3%, respectively. The firm plans to maintain the same capital structure. Including flotation costs in the analysis, by how much does the NPV decrease? Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent.
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Solution a To calculate the decrease in NPV due to flotation costs we need to first calculate the total amount of funds needed from each source of fin... View the full answer
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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