The Gamma Products Corporation has the following capital structure, which it considers optimal: Bonds, 7% (now...
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The Gamma Products Corporation has the following capital structure, which it considers optimal: Bonds, 7% (now selling at par) $ Preferred stock, $5.00 Common stock Retained Earnings 300,000 240,000 360,000 300,000 $1.200.000 Dividends on common stock are currently $3 per share and are expected to grow at a constant rate of 6 percent. Market price share of common stock is $40, and the preferred stock is selling at $50. Flotation cost on new issues of common stock is 10 percent. The interest on bonds is paid annually. The company's tax rate is 40 percent. Required: i. ii. Calculate the cost of each component of the capital structure (i.e. after tax cost of debt, preferred stock, retained earnings, and the new common stock.) The weighted average cost of capital including all components costs. The Gamma Products Corporation has the following capital structure, which it considers optimal: Bonds, 7% (now selling at par) $ Preferred stock, $5.00 Common stock Retained Earnings 300,000 240,000 360,000 300,000 $1.200.000 Dividends on common stock are currently $3 per share and are expected to grow at a constant rate of 6 percent. Market price share of common stock is $40, and the preferred stock is selling at $50. Flotation cost on new issues of common stock is 10 percent. The interest on bonds is paid annually. The company's tax rate is 40 percent. Required: i. ii. Calculate the cost of each component of the capital structure (i.e. after tax cost of debt, preferred stock, retained earnings, and the new common stock.) The weighted average cost of capital including all components costs.
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