Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,000,000 last year. F
Posted: Fri Jul 01, 2022 7:46 am
Cost of capital Edna Recording Studios, Inc., reportedearnings available to common stock of $4,000,000 last year. Fromthose earnings, the company paid a dividend of $1.27 on each ofits 1,000,000 common shares outstanding. The capital structure ofthe company includes 25% debt, 10% preferred stock, and 65%common stock. It is taxed at a rate of 26%. a. If the marketprice of the common stock is $35 and dividends are expected togrow at a rate of 9% per year for the foreseeable future, what isthe company's cost of retained earnings financing? b. Ifunderpricing and flotation costs on new shares of common stockamount to $9 per share, what is the company's cost of new commonstock financing? c. The company can issue $2.16 dividendpreferred stock for a market price of $25 per share. Flotationcosts would amount to $2 per share. What is the cost of preferredstock financing? d. The company can issue $1,000-par-value, 9%coupon, 11-year bonds that can be sold for $1,210 each.Flotation costs would amount to $20 per bond. Use the estimationformula to figure the approximate after-tax cost of debtfinancing? e. What is the WACC?