Cost of Capital- Edna Recording Studios, Inc., Reported earnings available to common stock of $4,200,000 last year. From those earnings, the company paid a dividend of $1.25 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 30% debt, 25% preferred stock, and 45% common stock. It is taxed at a rate of 30%
A) If the market prive of the common stock is $46 and dividends are expected to grow at a rate of 5% per year for the foreseeable future, what is the company's cost of retained earnings financing?
B) If underpricing and flotation costs on new shares of common stock amount to $8 per share, what is the company's cost of new common stock financing?
C) The company can issue $2.16 dividend prererred stock for a market price of $34 per share. Flotation costs would amount to $2 per share. What is the cost of preferred stock financing?
D) The company cna issue $1,000-par-value, 12% coupon, 14-year bonds that can be sold for $1,180 each. Flotation costs would amount to $25 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing?
E) What is the WACC?