Please help on cost of capital
SD is financed with 40% preferred stock and 50% common stock equity( retained earnings, new common stock or both) the applical income tax rate is 40%
debt bonds can be sold for 980 a 10 year 1,000 par value bond paying annual interst at a 6% coupon rate a floatition cost of 2% of par value is required in addition to the discount of $20 per bond
Preferred stock preferred stock having a par vallue of 100 and an 8% annual dividend can be sold for $85, however the underwriters will be paid an additional fee of $2 per share.
common stock: the firms common stock is currently selling for $150 per share. the dividend expected to be paid at the end of comming year 2016 is $12. Its a dividend payment which have been approximately 60% of Earnings per-share in each of the past five years are shown 2015 $11.25 2014 $10.50 2013 $9.90 2012 $9.45 2011 $8.55
It is expected that to attract buyers new common stock must be underpriced $15 per share and the firm must also pay nine dollars per-share in flotation costs dividend payments Park suspected to continue at 60% of earnings
a) calculate the specific cost of each each source of financing assume that the required return of retained earnings is equal to that on the common stock?
b) if earning available to common shareholders are expected to be 7 million what is the break Point associated with the exhaustion of retained earnings?
c) determine the weighted average cost of capital between zero and the break Point calculated in part B?
d) determine the weighted average cost of capital just Beyond the breakpoint calculated in part B?