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A firm has determined its optimal capital structure that is composed of the

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A firm has determined its optimal capital structure that is composed of the;following sources and target market value proportions.;Table 1;Source of Capital Target Market Portfolio;Long Term Debt 20%;Preferred Stock 10;Common Stock Equity 70;Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of 2 percent of the face value would be required in addition to the discount of $40. The firm's tax rate is 40%.;Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share.;Common Stock: A firm?s common stock is currently selling for $18 per share. Floatation costs for a new stock issuance is expected to be $3 per share of stock. The firm anticipates to pay a dividend equal to 6% of the current share price and anticipates that the dividend will continue to grow at a constant rate of 5% per year.;1) What is the firm?s cost of a new issue of common stock? (See Table 1);2) The firm's cost of retained earnings is? (See Table 1);3) The weighted average cost of capital up to the point when retained earnings are exhausted is? (See Table 1);4) The weighted average cost of capital after all retained earnings are exhausted is? (See Table 1);Additional Requirements;Min Pages: 1;Level of Detail: Show all work

 

Paper#21005 | Written in 18-Jul-2015

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