2024 – 9 3 Cost of Preferred Stock Duggins Veterinary Supplies can issue perpetual preferred stock at

9.3

 Cost of Preferred Stock Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $54.50 per share with an annual dividend of $5.50 a share. Ignoring flotation costs, what is the company’s cost of preferred stock, rps? Round your answer to two decimal places.%

 

9-4 Cost of Preferred Stock with Flotation Costs Burnwood Tech plans to issue some $60 par preferred stock with a 7% dividend. A similar stock is selling on the market for $73. Burnwood must pay flotation costs of 5% of the issue price. What is the cost of the preferred stock? Round your answer to two decimal places.%

 

9.5

Cost of Equity: DCF Summerdahl Resorts’ common stock is currently trading at $33.00 per share. The stock is expected to pay a dividend of $3.00 a share at the end of the year (D1 = $3.00), and the dividend is expected to grow at a constant rate of 4% a year. What is the cost of common equity? Round your answer to two decimal places.

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9-7 WACC Shi Importers’ balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi’s tax rate is 30%, rd = 7%, rps = 6.3%, and rs = 10%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Round your answer to two decimal places.

 

 9-9 Bond Yield and After-Tax Cost of Debt A company’s 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $640.49. The company’s federal-plus-state tax rate is 30%. What is the firm’s after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.) Round your answer to two decimal places.
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 9-12 Calculation of g and EPS Spencer Supplies’s stock is currently selling for $60 per share. The firm is expected to earn $6.00 per share this year and to pay a year-end dividend of $3.00.
If investors require a 10% return, what rate of growth must be expected for Spencer? Round your answer to two decimal places.
% If Spencer reinvests earnings in projects with average returns equal to the stock’s expected rate of return, then what will be next year’s EPS? (Hint: g = ROE × Retention ratio.) Round your answer to the nearest cent.

 

 9-13 The Cost of Equity and Flotation Costs Messman Manufacturing will issue common stock to the public for $35. The expected dividend and growth in dividends are $3.25 per share and 3%, respectively. If the flotation cost is 13% of the issue’s gross proceeds, what is the cost of external equity, re? Round your answer to two decimal places.
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 9-16 Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet:
Current assets $30,000,000 Current liabilities $10,000,000
Fixed assets 50,000,000 Long-term debt 30,000,000
Common stock
(1 million shares) 1,000,000
Retained earnings 39,000,000
Total assets $80,000,000 Total claims $80,000,000
The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company’s permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 6%, and a 25-year maturity. The going rate of interest on new long-term debt, rd, is 12%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $70 per share. Calculate the firm’s market value capital structure. Round your answers to two decimal places.Short-term debt $ %
Long-term debt $ %
Common equity $ %
Total capital $ %