Using the data above, calculate the following: • Cost of common equity using retained earnings • Cost of common equity using new common stock Cost of preferred stock

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 6P
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7. Use the following data for the WACC-related questions below.
Target capital structure: 15% debt, 10% preferred, 75% common equity
Current common stock price: $76.00
Next year's dividend on common stock: $3.50
Constant growth rate: 6%
Proceeds of new common stock net of flotation costs: $72.20
Before-tax cost of debt: 11%
Marginal tax rate: 25%
Preferred stock dividend: $4.50
Preferred stock price: $50.00
Retained earnings: $5,400,000
Using the data above, calculate the following:
Cost of common equity using retained earnings
Cost of common equity using new common stock
Cost of preferred stock
WACC using retained earnings
WACC using new common stock
Break point for common equity
Flotation cost (%)
Transcribed Image Text:7. Use the following data for the WACC-related questions below. Target capital structure: 15% debt, 10% preferred, 75% common equity Current common stock price: $76.00 Next year's dividend on common stock: $3.50 Constant growth rate: 6% Proceeds of new common stock net of flotation costs: $72.20 Before-tax cost of debt: 11% Marginal tax rate: 25% Preferred stock dividend: $4.50 Preferred stock price: $50.00 Retained earnings: $5,400,000 Using the data above, calculate the following: Cost of common equity using retained earnings Cost of common equity using new common stock Cost of preferred stock WACC using retained earnings WACC using new common stock Break point for common equity Flotation cost (%)
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