The capital structure for Nealon, Inc.
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The capital structure for Nealon, Inc., follows:
Nealon, Inc., Balance Sheet
TYPE OF FINANCING PERCENTAGE OF FUTURE FINANCING
Bonds (8%, $1,000 par, 16-year maturity)
38%
Preferred stock (5,000 shares outstanding, $50 par, $1.50 dividend)
15%
Common stock
47%
Total
100%
Flotation costs are (a) 15 percent of market value for a new bond issue, (b) $1.21 per share for common stock, and (c) $2.01 per share for preferred stock. The dividends for common stock were $2.50 last year and are projected to have an annual growth rate of 6 percent. The firm is in a 34 percent tax bracket. What is the weighted average cost of capital if the firm finances are in the following proportions?
Market prices are $1,035 for bonds,$19 for preferred stock, and $35 for common stock. There will be sufficient internal common equity funding (i.e., retained earnings) available such that the firm does not plan to issue new common stocks.
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This solution is comprised of a detailed explanation to find the weighted average cost of capital for Nealon, Inc.
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Weighted average cost of capital
The capital structure for Nealon, Inc., follows:
Nealon, Inc., Balance Sheet
TYPE OF FINANCING PERCENTAGE OF FUTURE FINANCING
Bonds (8%, $1,000 par, 16-year maturity)
38%
Preferred stock (5,000 shares outstanding, $50 par, $1.50 dividend)
15%
Common stock
47%
Total
100%
Flotation costs are (a) 15 percent of market value for a new bond issue, (b) $1.21 per share for common stock, and (c) $2.01 per share for preferred stock. The dividends for common stock were $2.50 last year and are projected to have an annual growth rate of 6 percent. The firm is in a 34 percent tax bracket. What is the weighted average cost of capital if the firm finances are in the following proportions?
Market prices are $1,035 for bonds,$19 for preferred stock, and $35 for common stock. There will be ...
Purchase this Solution
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