Explore BrainMass

Explore BrainMass

    Cost of equity and WACC

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    10- 2 COST OF PREFERRED STOCK
    Tunney Industries can issue perpetual preferred stock at a price of $ 47.50 a share. The stock would pay a constant annual dividend of $ 3.80 a share. What is the company's cost of preferred stock, rp?

    10- 4 COST OF EQUITY WITH AND WITHOUT FLOTATION
    Javits & Sons' common stock currently trades at $ 30.00 a share. It is expected to pay an annual dividend of $ 3.00 a share at the end of the year ( D1 =$ 3.00), and the constant growth rate is 5% a year.
    a. What is the company's cost of common equity if all of its equity comes from retained earnings?
    b. If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock?

    10- 7 COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION
    The Evanec Company's next expected dividend, D1, is $ 3.18; its growth rate is 6%; and its common stock now sells for $ 36.00. New stock ( external equity) can be sold to net $ 32.40 per share.
    a. What is Evanec's cost of retained earnings, rs?
    b. What is Evanec's percentage flotation cost, F?
    c. What is Evanec's cost of new common stock, re?

    10- 8 COST OF COMMON EQUITY AND WACC
    Patton Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. It's before- tax cost of debt is 12%, and its marginal tax rate is 40%. The current stock price is P0 = $ 22.50. The last dividend was D0 = $ 2.00, and it is expected to grow at a 7% constant rate. What is its cost of common equity and it's WACC?

    © BrainMass Inc. brainmass.com December 15, 2022, 8:09 pm ad1c9bdddf
    https://brainmass.com/business/weighted-average-cost-of-capital/cost-of-equity-and-wacc-276533

    Solution Preview

    10-2
    Preferred stock is a perpetuity. For a perpetuity, the cost is given as Annual Dividend/Price
    Cost of preferred stock = 3.80/47.50 = 8.0%

    10-4
    a. Using the constant growth formula,
    Cost of equity = D1/P0 + g
    where D1 = expected dividend = $3.00, P0 = ...

    Solution Summary

    The solution explains how to calculate the cost of preferred stock, common stock and the WACC

    $2.49

    ADVERTISEMENT