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F. Naz, B.Com
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Experience:  Have completed B.Com and CA Finalist
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# Your Company is planning an expansion and needs to develop

### Resolved Question:

Your Company is planning an expansion and needs to develop an estimate of the firm’s cost of capital. You have gathered the following data:

• Tax rate is 40%
• The price of Your Company’s 12 percent coupon, annual payment, noncallable \$1,000 face value bonds with 15 years to maturity is \$1,153.72. The company does not use short-term debt on a permanent basis. New bonds would be privately placed with no flotation cost.
• The price of Your Company’s 10 percent, \$100 par value, quarterly dividend preferred stock is \$111.10.
• Your Company’s common stock is selling for \$50 per share. Its last dividend was \$4.19, and dividends are expected to grow at a constant 5 percent rate.
• If Your Company issues new common stock, it will incur a 15 percent flotation cost.
•Your Company’s target capital structure is 30 percent long-term debt, 10 percent preferred stock, and 60 percent equity.

Determine:
(a) The cost of debt.
(b) The cost of retained earnings.
(c) The cost of new equity.
(d) The WACC using retained earnings.
Submitted: 1 month ago.
Category: Single Problem
Expert:  F. Naz replied 1 month ago.
Have a nice day

F. Naz, B.Com
Category: Single Problem
Satisfied Customers: 3831
Experience: Have completed B.Com and CA Finalist
Customer: replied 1 month ago.

thank you for this

as we are supposed to be using excel formulas such as pv, fv, rate etc., wondering if you can substitute your formulas with these?

Customer: replied 1 month ago.

in the event there are no excel formulas for cost of retained earnings and common stock, can you explain where you got 1.05 that is used in the retained earnings and common stock calculations?

Expert:  F. Naz replied 1 month ago.
All calculations will be shown when you will click on the respective cell, but I have also added the explanatation to make it more clear, take care.

Customer: replied 1 month ago.

thanks so much!

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