Cost of preferred stock
Taylor Systems has just issued preferred stock. The stock has a 11% annual dividend and a $50 par value and was sold at $54.50 per share. In addition, flotation costs of $4.50 per share were paid. Calculate the cost of the preferred stock.
The cost of the preferred stock is nothing%. (Round to two decimal places.)
Cost of common stock equity—CAPM
J&M Corporation common stock has a beta, b, of 1.3. The risk-free rate is 9%, and the market return is 16%.a. Determine the risk premium on J&M common stock.b. Determine the required return that J&M common stock should provide.c. Determine J&M’s cost of common stock equity using the CAPM.a. The risk premium on J&M common stock is nothing%. (Round to one decimal place)
Cost of common stock equity
Ross Textiles wishes to measure its cost of common stock equity. The firm’s stock is currently selling for $51.29. The firm expects to pay a $3.31 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table: (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
|Year||Dividend per Share|
After underpricing and flotation costs, the firm expects to net $45.14 per share on a new issue.a. Determine the growth rate of dividends from 2011 to 2015.b. Determine the net proceeds, Nn, that the firm will actually receive.c. Using the constant-growth valuation model, determine the cost of retained earnings, rs.d. Using the constant-growth valuation model, determine the cost of new common stock, rn.a. The growth rate of dividends from 2011 to 2015 is nothing%. (Round to two decimal places.)
The effect of tax rate on WACC
K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 20% debt, 15% preferred stock, and 65% common stock. The cost of financing with retained earnings is 13%, the cost of preferred stock financing is 9%, and the before-tax cost of debt financing is 11%. Calculate the weighted average cost of capital (WACC) given a tax rate of 40%.The firm’s WACC is nothing%. (Round to two decimal places.)
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