FIN 300 Quiz 5 - FIN 300 Quiz 5 Cost of Capital Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of $8 and are

FIN 300 Quiz 5 - FIN 300 Quiz 5 Cost of Capital Builtrite...

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FIN 300 Quiz 5 Cost of CapitalBuiltrite Auto has preferred stock shares outstanding that pay an annual dividend of $8 and are currently selling for $86 a share. What is the after-tax cost of preferred stock if the flotation cost for new shares is 5% and Builtrite is in the 34% marginal tax bracket? Builtrite Furniture is considering selling bonds for a plant expansion. Currently, Builtrite believes that it could sell 15 year maturity, $1000 par value, 5 3/4% coupon bonds after flotation costs for $985. If Builtrite is in the 34% marginal tax bracket, what is the after-tax cost for the bonds? 3Builtrite’s common stock is currently selling for $56 a share and the firm just paid an annual dividend of $3.20 per share. Management believes that dividends and earnings should grow at 9% annually. Based on this, and a marginal tax rate of 34%, what is the cost of common stock (also known as the cost of retained earnings)? D= 3.20 D1= 3.20(1.09) = 3.49 + .09 = 15.2% 56Builtrite’s common stock is currently selling for $48 a share and the firm just paid an annual dividend of $2.30 per share. Management believes that dividends and earning should grow at 8% annually. Since new stock would need to be sold to finance an expansion, Builtrite expects flotation costs to be a marginal tax rate of 34%, what is the cost of new common stock? D= 2.30 D1= 2.30(1.08) = 2.48 + .08 = 13.4%48(.95)Common stock is not a hybrid security, preferred stock is a hybrid stock.

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