Question
In: Finance
Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those...
Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those earnings, the company paid a dividend of $1.33 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 45% debt, 20% preferred stock, and 35% common stock. It is taxed at a rate of 26%.
a. If the market price of the common stock is $42 and dividends are expected to grow at a rate of 6% per year for the foreseeable future, what is the company's cost of retained earnings financing?
b. If underpricing and flotation costs on new shares of common stock amount to $8 per share, what is thecompany's cost of new common stock
financing?
c. The company can issue $2.15 dividend preferred stock for a market price of $27
per share. Flotation costs would amount to $2 per share. What is the cost of preferred stock financing?
d. The company can issue $1,000-par-value, 10% coupon, 15-year bonds that can be sold for $1,170 each. Flotation costs would amount to $30
per bond. Use the estimation formula to figure the approximateafter-tax cost of debt financing?
e. What is the retained earnings and cost of new common stock WACC?
Solutions
jeff jeffy answered 5 months agoRelated Solutions
Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those...
Edna Recording Studios, Inc., reported earnings available to
common stock of
$5,000,000
last year. From those earnings, the company paid a dividend
of
$1.15
on each of its
1,000,000
common shares outstanding. The capital structure of the company
includes
45%
debt,
10%
preferred stock, and
45%
common stock. It is taxed at a rate of
30%.
If the market price of the common stock is
$31
and dividends are expected to grow at a rate of
9%
per year for...
Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those...
Edna Recording Studios, Inc., reported earnings available to
common stock of
$5,000,000
last year. From those earnings, the company paid a dividend
of
$1.15
on each of its
1,000,000
common shares outstanding. The capital structure of the company
includes
45%
debt,
10%
preferred stock, and
45%
common stock. It is taxed at a rate of
30%.
If the market price of the common stock is
$31
and dividends are expected to grow at a rate of
9%
per year for...
Edna Recording Studios, Inc., reported earnings available to common stock of $4,800,000 last year. From those...
Edna Recording Studios, Inc., reported earnings available to
common stock of $4,800,000 last year. From those earnings, the
company paid a dividend of $1.22 on each of its 1,000,000 common
shares outstanding. The capital structure of the company includes
35% debt, 15% preferred stock, and 50%common stock. It is taxed at
a rate of 35%.
a.If the market price of the common stock is $37 and dividends
are expected to grow at a rate of 7% per year for the...
Edna Recording Studios, Inc., reported earnings available to common stock of $4,000,000 last year. From those...
Edna Recording Studios, Inc., reported earnings available to
common stock of $4,000,000 last year. From those earnings, the
company paid a dividend of $1.34 on each of its 1,000,000 common
shares outstanding. The capital structure of the company includes
30% debt, 15% preferred stock, and 55% common stock. it is taxed at
a rate of 26%.
a. If the market price of the common stock is $46 and
dividends are expected to grow at a rate of 9% per year...
P9–16 Cost of capital Edna Recording Studios Inc. reported earnings available to common stock of $4,200,000...
P9–16 Cost of capital Edna Recording Studios Inc. reported
earnings available to common stock of $4,200,000 last year. From
those earnings, the company paid a dividend of $1.26 on each of its
1,000,000 common shares outstanding. The capital structure of the
company includes 40% debt, 10% preferred stock, and 50% common
stock. It is taxed at a rate of 21%.
If the market price of the common stock is $40 and dividends are
expected to grow at a rate of...
Dexter Brothers Inc. reported net income available to common shareholders of $4,200,000 last financial year. The...
Dexter Brothers Inc. reported net income available to common
shareholders of $4,200,000 last financial year. The company has
paid $1.20 dividend per share for the 1,000,000 common shares
outstanding. The company’s capital structure is included of 40
percent debt, 10 percent preferred shares and 50 percent common
shares. The company were taxed at 40 percent. *
(a) If the common shares are priced at $50 and the dividend is
expected to grow at 5 percent per year for the foreseeable...
Cendana Berhad has made a profit of RM3 million last year. From those earnings, the company...
Cendana Berhad has made a profit of RM3
million last year. From those earnings, the company paid the
dividend of RM2.00 on each of its 1,000,000 common shares
outstanding. The capital structure of the company includes 30%
debt, 20% preferred shares and 50% common shares. The corporate tax
rate is 28%. The company wishes to venture into a new project and
decided to use debt, preferred shares and common shares as sources
of financing and still maintaining its current capital...
Cendana Berhad has made a profit of RM3 million last year. From those earnings, the company...
Cendana Berhad has made a profit of RM3
million last year. From those earnings, the company paid the
dividend of RM2.00 on each of its 1,000,000 common shares
outstanding. The capital structure of the company includes 30%
debt, 20% preferred shares and 50% common shares. The corporate tax
rate is 28%. The company wishes to venture into a new project and
decided to use debt, preferred shares and common shares as sources
of financing and still maintaining its current capital...
Last year, Rec Room Sports reported earnings per share of $7.60 when its stock price was...
Last year, Rec Room Sports reported earnings per share of $7.60
when its stock price was $121.60. This year, its earnings increased
by 25 percent. If the P/E ratio remains constant, what is likely to
be the price of the Stock? (Round your answer to 2 decimal
places.)
(Common stock valuation) The common stock of NCP paid $1.32 in dividends last year. Dividends are...
(Common stock valuation) The common stock of NCP paid $1.32
in dividends last year. Dividends are expected to grow at an annual
rate of 8.00 percent for an indefinite number of years. a. If your
required rate of return is 10.50 percent, what is the value of the
stock for you? b. Should you make the investment?
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