Component cost of debt, preferred stock, & common stock
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Calculate the component costs of debt, preferred stock, and common stock. Will these costs be constant irrespective of the amount of capital raised? Please explain.
Table
Expected Growth Rate of Sales ....................................... 25%
Expected Growth Rate of Earnings and Dividends .......... 12%
Expected Return on the Market........................................ 5%
Treasury bill rate............................................................... 6%
Expected retention rate .................................................... 60%
Firm's Equity Beta ............................................................ 1.2
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Solution Summary
Almost 100 words find these costs and explain if they are responsive to amount of capital raised.
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Cost of Common Stock (i.e. Equity) is T-Bill rate + beta*Expected Return on the Market = 0.12 or 12%
Cost of Debt could be estimated by taking ...
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