Current assets Net Fixed assets ● Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (Do)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual upon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. Calculate the cost of the following capital components (answers should be in % with two decimal points): the cost of equity from retained earnings using the DCF method
Current assets Net Fixed assets ● Total assets Accounts payable and accurals. Short term debt Long term debt Preferred Stock (10,000 shares) Common Stock (50,000 shares) Retained earnings Total common equity Total liabilities and equity $2,000 3,000 $5,000 $900 100 1,100 250 1,300 1,350 $2,650 $5,000 Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00, last year's dividend (Do)was $2.25, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share, and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is 12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual upon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk- free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million. Use this data to answer the questions in the assignment. Calculate the cost of the following capital components (answers should be in % with two decimal points): the cost of equity from retained earnings using the DCF method
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Current assets
Net Fixed assets
Total assets
Accounts payable and accurals.
Short term debt
Long term debt
Preferred Stock (10,000 shares)
Common Stock (50,000 shares)
Retained earnings
.
Total common equity
Total liabilities and equity
$2,000
3,000
$5,000
$900
100
1,100
250
1,300
1,350
$2,650
$5,000
Sunrise's earnings per share last year were $3.20. The common stock sells for $52.00,
last year's dividend (Do)was $2.25, and a flotation cost of 10% would be required to sell
new common stock. Security analysts are projecting that the common dividend will grow
at an annual rate of 8.8%. Sunrise's preferred stock pays a dividend of $2.90 per share,
and its preferred stock sells for $25.00 per share. The firm's before-tax cost of debt is
12%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual
coupon rate, long-term debt sells at par value. The market risk premium is 5.2%, the risk-
free rate is 5.5%, and Sunrise's beta is 1.526. The firm's total debt, which is the sum of
the company's short-term debt and long-term debt, equals $1.2 million.
Use this data to answer the questions in the assignment.
Calculate the cost of the following capital components (answers should be in % with two
decimal points):
the cost of equity from retained earnings using the DCF method
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