Edna Recording Studios, Inc., reported earnings available to common stock of 4,400,000 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 40% debt, 15% preferred stock, and 45% common stock. It is taxed at a rate of 30%.
a. If the market price of the common stock is $42 and dividends are expected to grow at a rate of 8% 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 $1.59 dividend preferred stock for a market price of $32 per share. Flotation costs would amount to $3 per share. What is the cost of preferred stock financing.
d. The company can issue 1,000-par-value, 12% coupon, 12-year bonds that can be sold for $1,300 each. Flotation costs would amount to $35 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing?
e. What is the WACC.