Explore BrainMass

Explore BrainMass

    Finest Products, Inc- 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!

    Finest Products, Inc. has an optimal capital structure of 30% debt, 10% preferred stock, and 60% common equity. The firm has an after-tax cost of debt of 8%, and can sell as much debt as it wants at this rate. The firm's preferred stock is currently selling for $110 per share and pays a $10 dividend. Finest's common stock is selling at $25 per share and has a current annual dividend at $2 per share with an expected dividend growth rate of 5% per year. Flotation costs would amount to 10% for the sale of new preferred stock as well as new common stock. Calculate FPI's WACC above the breakpoint.

    © BrainMass Inc. brainmass.com March 4, 2021, 7:41 pm ad1c9bdddf
    https://brainmass.com/business/weighted-average-cost-of-capital/finest-products-inc-wacc-116867

    Solution Preview

    Finest Products, Inc. has an optimal capital structure of 30% debt, 10% preferred stock, and 60% common equity. The firm has an after-tax cost of debt of 8%, and can sell as much debt as it wants at this rate. The firm's preferred stock is currently selling for $110 per share and pays a $10 dividend. Finest's common stock is selling at $25 per share and has a current annual dividend at $2 per share with an expected dividend growth rate of 5% per year. Flotation costs would amount to 10% for the sale of new ...

    Solution Summary

    The solution calculates WACC given optimal capital structure, price and return on securities (debt, common stock and preferred stock) and floatation costs.

    $2.49

    ADVERTISEMENT