Using the information below, solve for the following requested costs and WACC. a) The earnings, dividends, and...

Using the information below, solve for the following requested costs and WACC.

a) The earnings, dividends, and stock price of Finance Inc. are expected to grow at 6% per year in the future. Finance’s common stock sells for $25 per share, its last dividend was $2.50, and the company will pay a dividend of $2.75 at the end of the current year. Using the dividend growth approach, what is the cost of common stock?

b) Finance’s 6% coupon rate, annual payment, $1,000 par value bonds mature in 30 years and sell at a price of $940. The tax rate is 40%, what is the cost of debt (pre and after tax)?

c) Finance Inc. can issue perpetual preferred stock at a price of $75 per share with an annual dividend of $10 per share, what is the cost of preferred stock (ignore floatation costs)?

d) Assuming Finance Inc. has 45% of their capital financed through long-term bonds, 30% in common equity, and the remainder in preferred stock, what is their weighted average cost of capital? (assume they want to maintain these weights).

(for percentages, round to two decimals)

What is the cost of common stock?
What is the cost of debt? (pre-tax)
What is the cost of debt? (after-tax)
What is the cost of preferred stock?
What is the weighted average cost of capital?

Expert Solution

jeff jeffy answered 1 year ago

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