subject
Mathematics, 13.11.2020 20:30 gabw2758

A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 10.9 percent coupon rate and another bond with an 8.5 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 11.8 percent. The common stock has a price of $63 and an expected dividend (D1) of $1.83 per share. The historical growth pattern (g) for dividends is as follows:

$ 1.38
1.52
1.67
1.83

The preferred stock is selling at $83 per share and pays a dividend of $7.90 per share. The corporate tax rate is 30 percent. The flotation cost is 2.0 percent of the selling price for preferred stock. The optimum capital structure for the firm is 25 percent debt, 15 percent preferred stock, and 60 percent common equity in the form of retained earnings.

a. Compute the average historical growth rate. (Do not round intermediate calculations. Round your answer to the nearest whole percent and use this value as g. Input your answer as a whole percent.)

b. Compute the cost of capital for the individual components in the capital structure. (Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

c. Calculate the weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

ansver
Answers: 3

Other questions on the subject: Mathematics

image
Mathematics, 21.06.2019 17:30, hp1013756
1. if we have 3 babies what is the probability they’re going to be all boys? 2. if we roll 2 die at the same time what is the probability of getting less than 10 on the first roll and a 5 on the second roll 3. if we have 3 babies what is the probability their is going to be 2 girls? 4. if we have 3 babies what is the probability of having no more than 1 girl? 5. it we have 3 babies and then have another 3 babies what is the probability of us having at least 1 boy and then having all girls?
Answers: 1
image
Mathematics, 21.06.2019 18:30, gthif13211
1.two more than the quotient of a number and 6 is equal to 7 use the c for the unknown number translate the sentence into an equation
Answers: 1
image
Mathematics, 21.06.2019 19:30, rb3910
Last month, a 770 g box of cereal was sold at a grocery store for $3.10. however, this month, the cereal manufacturer launched the same cereal in a 640 g box, which is being sold at $2.50. what is the percent change in the unit price?
Answers: 1
image
Mathematics, 21.06.2019 19:50, kyleeeeee94
What is the distance between point a and b
Answers: 1
You know the right answer?
A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital b...

Questions in other subjects:

Konu
Mathematics, 08.03.2021 08:30
Konu
Health, 08.03.2021 08:30
Konu
English, 08.03.2021 08:30
Konu
Mathematics, 08.03.2021 08:30