In: Finance
Part one
The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is 4%; and its common stock now sells for $38.00. New stock (external equity) can be sold to net $30.40 per share.
What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places.
rs = %
What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.
F = %
What is Evanec's cost of new common stock, re? Do not round intermediate calculations. Round your answer to two decimal places.
re = %.
part two
Adamson Corporation is considering four average-risk projects with the following costs and rates of return:
Project | Cost | Expected Rate of Return | |
1 | $2,000 | 16.00% | |
2 | 3,000 | 15.00 | |
3 | 5,000 | 13.75 | |
4 | 2,000 | 12.50 |
The company estimates that it can issue debt at a rate of rd = 11%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $7.00 per year at $57.00 per share. Also, its common stock currently sells for $50.00 per share; the next expected dividend, D1, is $4.75; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.
What is the cost of each of the capital components? Do not round intermediate calculations. Round your answers to two decimal places.
Cost of debt: %
Cost of preferred stock: %
Cost of retained earnings: %
What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places.
%
Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?
part 3
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and a 9% coupon, semiannual payment ($45 payment every 6 months). The bonds currently sell for $896.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt? Do not round intermediate calculations. Round your answer to two decimal places.