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[solution]: Company E has the following capital structure: debt - 30%/


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Company E has the following capital structure:  debt ? 30%/ preferred stock ? 10%; common stock ? 60%
The firm plans to spend $100,000,000 on new capital projects. New bonds can be sold at par with an 8% coupon rate. Preferred stock can be sold with a dividend of $2.75, a par value of $25.00, and a floatation cost of $2.00 per share. Common stock is presently selling at $35.00 per share. The last dividend paid was $3.00 and the firm expects to grow at a rate of 4% in the foreseeable future. The firm's marginal tax rate is 40%. Calculate the firm?s weighted average cost of capital. (round to 2 decimals as a %)


Debt

 

Preferred Stock

 

Common Stock

 

Cost of debt

 

Payment

 

Cost of debt after tax

 


 

30%

 

10%

 

60%

 


 

8%

 

4.80%

 


 

Preferred Stock

 

Dividend

 

Par value

 

Cost

 


 

2.75

 

23

 

11.96%

 


 

Common stock

 

SP

 

D0

 

Growth

 


 

35

 

3

 

4%...

 


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