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- A firm has determined its optimal capital structure which is composed of the following sources. Preferred Stock:The firm has determined it can issue preferred stock at RM75 per share par value. The stock will pay a RM10 annual dividend. The cost of issuing and selling the stock is RM3 per share. Common Stock:The firm’s common stock is currently selling for RM18 per share. The dividend expected to be paid at the end of the coming year is RM1.74. Its dividend payments have been growing at a constant rate of 3% for the last four years. It is expected that to sell, a new common stock issue must be underpriced, with floatation costs of RM1 per share. Based on the above information, what is the firm’s cost of preferred stock and cost of a new issue of common stock? Which of the two sources offers a lower cost? Show your workings.(b) A firm has determined its optimal capital structure which is composed of the following sources. Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: The firm's common stock is currently selling for $18 per share. The dividend expected to be paid at the end of the coming year is $1.74. Its dividend payments have been growing at a constant rate of 3% for the last four years. It is expected that to sell, a new common stock issue must be underpriced, with floatation costs of $1 per share. Based on the above information, what is the firm's cost of preferred stock and cost of a new issue of common stock? Which of the two sources offers a lower cost? Show your workings. ( 10 )A firm has 8% dividend preferred stock with a par value of $100 issued and outstanding. The stock is currently selling for $98.50 in the market today. If the firm is to issue new preferred shares to fund a portion of the new capital expenditures, what is the cost of new preferred share funding? Select one: a. 7.88% b. 8.12% c. 8.88% d. 8.00%
- Global Gum Company (GGC) has decided to issue $150 million in common stock toraise funds to finance future growth. GGC’s stock currently sells for $25 per share.a. How many shares of stock does GGC plan to issue?b. If flotation costs are 8 percent, how much of the $150 million will GGC beable to use to fund growth?Your PE firm is considering acquiring a publicly traded digital advertising company, Star Dust Enterprises (SDE). The following are some key statistics of the stock of SDE today (t = 0). SDE is 100% equity financed. Its cost of capital (apply this to all cash flows) is 11.2% and the payout ratio is 79%. Expected earnings per share of SDE at next year (t = 1) are $6.6. Assume that without new investments, expected earnings of SDE would remain at their time-1 level in perpetuity. All future investments are expected to generate $0.2 in incremental earnings for each $1 of investment. For an investment made at time t, incremental cash flows are generated starting in year t + 1. (a) Compute expected dividend per share of SDE next year (t = 1): $ (b) Compute expected dividend per share of SDE two years from now (t = 2): $ (c) What is the present value of growth opportunities (PVGO) of SDE today? $A firm needs to raise $135 million to finance its expansion into new markets. The company will sale new shares of equity via general cash offering to raise funds. If the offer price is $58 per share and the company's underwriter charge a spread of 5%, how many shares need to be sold?
- RAFA Corp. is considering to issue new shares with a par value of P1,000, issue price of P1,200 and net proceeds of 1,050. Shareholders expect dividends of P80 per share for the first year and a growth rate of 4%. It may also use retained earnings as an alternative source of financing? Choosing the better alternative of the two, what would the incremental cost of capital be for RAFA? * 11.619 10.667 12.000 7.924The DupT corporation plans to do a common stock issue to fund its next equity investment project. The market price of the corporation's stock is $ 75 per share. A dividend of $ 5 per share is expected to be paid at the end of the year. The corporation has had an average annual growth of 6%. The issue cost is $ 2.50 per share. Determine the cost of equity capital using Gordon's constant growth method (Gordon Growth Model). You will have to show the counts.Allen Corporation can (1) build a new plant that should generate a before-tax return of 10%, or (2) invest the same funds in the preferred stock of Florida Power & Light (FPL), which should provide Allen with a before-tax return of 9.00%, all in the form of dividends. (Assume that the preferred stock has a par value of $100 and annual dividends per share = $9; therefore, $9/$100 = annual 9% return.) Assume that Allen’s marginal tax rate is 25%, and that 50% of dividends received are excluded from taxable income. If the plant project is divisible into small increments, and if the two investments are equally risky, what combination of these two possibilities will maximize Allen’s effective return on the money invested? Hint: Use the following equation to help you answer this question, After-tax return = Pretax return (1 - T). (Round your final answer to two decimal places.) a. All in FPL preferred stock. b. 60% in the project; 40% in FPL. c. All in the plant project. d. 60% in…
- Anle Corporation has a current stock price of $20 and is expected to pay a dividendof $1 in one year. Its expected stock price right after paying that dividend is $22.a. What is Anle’s equity cost of capital?b. How much of Anle’s equity cost of capital is expected to be satisfied by dividendyield and how much by capital gain?Anle Corporation has a current stock price of $20 and is expected to pay a dividendof $1 in one year. Its expected stock price right after paying that dividend is $22.b. How much of Anle’s equity cost of capital is expected to be satisfied by dividendyield and how much by capital gain?B6. (NPV and shareholder wealth) Stockholders are surprised to learn that the firm has invested $43 million in a project that has an expected payoff of $8 million per year for six years. The project’s cost of capital is 12%. What is the project’s NPV? There are 3 million outstanding shares. What should be the direct impact of this invest- ment on the per-share value of the common stock?