1. A Company’s perpetual preferred stock sells for $102.50 per share, and pays a $9.50 annual dividend. If the company were to issue a new preferred issue, a flotation cost of 4.00% would be paid to the investment bankers. What is the company's cost of issuing new preferred stock?
2. You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant).
If your company is going to issue new equity, it will incur an additional 6% flotation costs what is the cost of issuing new equity?
3. Several years ago your company sold a $1,000 par value, non-callable bonds that now has 12 years to maturity and a 8.00% annual coupon that is paid semi annually. The bond currently sells for $925, and the company’s tax rate is 40%. What is the component cost of debt for use in the WACC calculation?
4. Your company’s target capital structure is 35% debt, 15% preferred, and 50% common equity. The yield to maturity on the debt is 7.50%, the return on the preferred is 7.00%, the cost of retained earnings is 12.5%, and the tax rate is 40%. The firm will not be issuing any new security. What is the WACC?
5. Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a constant rate of 5% indefinitely. Today’s market price/share is $45. Suppose also that your company has some bonds outstanding in the market selling for $1,035. The bonds have 8 years left to maturity, with 8% coupon rate with semi-annual payments. If your company’s capital structure is 35% debt and 65% equity, with the tax rate of 40% what is the WACC?