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  3. a share of apple inc. stock sells for $142.65, and

A share of Apple Inc. stock sells for $142.65, and last years dividend was $0.88....

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Accounting

A share of Apple Inc. stock sells for $142.65, and last years dividend was $0.88. Security analysts are projecting that the common dividend will grow at a constant rate of 7.0% a year. In order to issue new common stock, a flotation cost of 3.5% would be required. Assume that Apple will not use preferred stock in its capital structure. The firm can issue additional long-term debt at an interest rate of 2.51%, and its marginal tax rate is 20%. The market risk premium is 5.5%, the risk-free rate is 0.26%, and Apples beta is 1.20. The cost of short-term debt for Apple is 0.75%.

Part 1: Component Costs

A) Calculate the after-tax cost of short-term debt (8 points)

B) Calculate the after-tax cost of long-term debt (8 points)

C) Calculate the cost of preferred stock (8 points)

D) Calculate the cost of internal equity using both the CAPM method and the dividend growth approach (8 Points)

Please show the excel formulas that explain the solution thoroughly.

image

Part 1: Component Costs A) Cost of Short-Term Debt T rstd After-tax cost of short-term debt B) Cost of Long-Term Debt T rd After-tax cost of long-term debt C) Cost of Common Equity CAPM Appraoch: b TRF RPM rs Dividend Growth Approach: Do g Di Po r's D) Cost of Preferred Stock Dps Pps

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