Company X intends to expand the company's operation by making significant investments in several opportunities available to the group. Accordingly, the group has identified a need for additional financing in preferred and new common stock and new bond issues.
New Debt the Company has been advised that new bonds can be sold on the market at par ($1000) with an annual coupon of 8%, for 30 years.
New Common Stock Market analysis has determined that given the positive history of the firm, new common stock can be sold at $29 per share, with the last dividend being paid of $2.25 per share. The growth rate on any new common stock has been estimated at a constant rate of 15% per year for the next 3 years.
Preferred Stock New Preferred Stock can be issued with an annual dividend of 10% of par and is paid annually and currently would sell for $90 per share.
1. What is the after tax cost of new common stock, assuming constant growth in each of the next 3 years? - Identify the after tax cost of new common stock for each of the next three years.
2. What would the dividend yield in each of the first three years if the growth rate is 12%? - Calculate the dividend yield in each of the next three years correctly
3. What is the after tax component cost of new debt today? -Identify the correct after tax cost of all forms of new debt. Recap findings and show work
UPDATE: Tax rate is 40%
Coefficient is 1.3 M
Market Rate (KM) is 12