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Unformatted text preview: 30% Preferred Stock 10% Equity 60% In order to meet their expansion plans for next year, the company has decided to raise $10,000,000. Net Income is expected to be $1,000,000 next year. However, preferred stock dividends are expected to account for $100,000 of this profit. The common stock dividend payout rate is 40% of the profit after the payment of preferred dividends. The corporate tax rate is equal to 40%, and the before-tax costs of new financing are estimated to be: Debt: 4% for the first $2,000,000 of new debt. 5% for up to an additional $1,000,000 of new debt. 6% for up to an additional $1,000,000 of new debt. Preferred: 6% for the first $1,000,000 of new preferred. 7% for up to an additional $1,000,000 of new preferred. Equity: 10% for retained earnings. 11% for up to the first $2,000,000 of new common stock. 12% for up to an additional $2,000,000 of new common stock....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08
- Cost Of Capital