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a. A $1,000 par value bond with a market price of $940 and acoupon interest rate of 7 percent. Flotation costs for a new issuewould be approximately 8 percent. The bonds mature in 8 years andthe corporate tax rate is 35 percent.

b. A preferred stock selling for $103 with an annual dividendpayment of $8.The flotation cost will be $7 per share. The​company's marginal tax rate is 30 percent.

c. Retained earnings totaling $4.8 million. The price of thecommon stock is $71 per​share, and dividend per share was $8.24last year. The dividend is not expected to change in thefuture.

d. New common stock for which the most recent dividend was$2.83. The​ company's dividends per share should continue toincrease at a growth rate of 7 percent into the indefinite future.The market price of the stock is currently $47 ​however, flotationcosts of $6 per share are expected if the new stock is issued.

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Nelly Stracke
Nelly StrackeLv2
28 Sep 2019

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The Choi's Company's next expected dividend, D1, is $3.18; its growth rate is 6 percent; and its stock currently sells for $36. New stock can be sold to net the firm $32.40 per share. (a) What is Choi's percentage flotation cost? (b) What is Choi's cost of new common stock?

Collins Manufacturing Company has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Target Market - Source of Capital Proportions Long-term debt 30% Preferred stock 10% Common stock equity 60% Debt: The firm can sell a 20-year, $1,000 par value, 9 percent bond for $980. A flotation cost of 2 percent of the face value would be required in addition to the discount of $20. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 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 $40 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years at a rate of 8%. In order to assure that the new stock issuance will sell, it must be underpriced at $1 per share. In addition, the firm must pay $1 per share in flotation costs. The firm’s tax rate is 40 percent. Required: Calculate the firm’ weighted average cost of capital for the Collins Company assuming the firm has exhausted all retained earnings. (That is, you must consider flotation costs for the common stock issuance.)

A company, West Berwick Enterprises, has a capital structure as follows:

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Common Equity $500,000

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