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Assignment 3

# Assignment 3 - Weighted Cost of Capital Using Internal...

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MINI CASE DATA Flotation costs: Bond 15% P/S 2.01 Div for C/S 2.50 Div for P/S 1.50 growth 6% Bond Coupon 8% 80.00 Par Value 1,000.00 Years 16 tax rate 34% Mrkt prices Bonds 1,035.00 P/S 19.00 C/S 35.00 A. % of Mix Bonds 38% P/S 15% C/S 47% Bond's Cost of Capital N 16 38 1035 80 \$2.11 flotation 15.00% Net price = 879.75 PV (879.75) 16 80 I/Y FV PMT CPT PV N PMT

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1035 Cost of Capital = 9.601% tax rate 34% Kd (1-Tc) After-tax COC = .09601*(1-0.34) 6.337% Preferred Stock's Cost of Capital required rate of return PS Dividend price of PS \$0.07895 Price of perfered stock PS Dividend Net price = requied rate return \$19.00000 flotation 2.01 Cost of Capital = 8.829% Internal Common Stock's Cost of Capital Market Price = \$35.00 Price of common stock CS Dividend P CS+ .06 \$0.13143 Cost of Capital = 13.143%
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Unformatted text preview: Weighted Cost of Capital Using Internal Funds Debt = 6.337% 38% 2.408% P/S = 8.829% 15% 1.324% C/S = 13.143% 47% 6.177% 9.909% B. External Common Stock's Cost of Capital Market Price = \$35.00 Price of common stock CS Dividend FV CPT I/Y WACC=(after−tax cost of dept × proportion of debt financing)+ (cost of equity × proportion of equity financing) (N CS-2.45)+ .06 \$0.13680 Cost of Capital = 13.680% Weighted Cost of Capital Using External Funds Debt = 6.337% 38% 2.408% P/S = 8.829% 15% 1.324% C/S = 13.680% 47% 6.430% 10.162% WACC=(after−tax cost of dept × proportion of debt financing)+ (cost of equity × proportion of equity financing)...
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