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BOOK Accounts Payable $120,124 Accruals and Other Current Liabilities 64,111 Notes Payable (for working capital) 58,125 TOTAL CURRENT LIABILITIES 242,360 Long-term Debt 275,000 TOTAL LIABILITIES 517,360 Preferred Stock (par $100) 5,000 Common Equity ($1 par) 10,000 Excess of Par 40,000 Retained Earnings 458,445 TOTAL LIABILITIES AND EQUITY $1,030,805 Exhibit V: Market, Industry, and SCRPCs Financial Information Treasury Bill Rate 4.25% Long-term Government Bond Yield 7.45% Long-term Corporate Bond Yield 8.75% Average Beta for Industry 1.25 SCRPCS Beta 1.45 Average P/E Ratio for Industry 13.50 SCRPCS Recent P/E Ratio 10.75 Recent Price of SCRPCs Common Stock $36.01 SCRPCs Tax Rate 40% SCRPCs Bond Risk Premium 4.0% SCRPCs Bonds are selling at $910 with a Coupon. Rate of 7.25 and maturity of 14 years. Floatation costs for the bonds would be $5 per bond. SCRPCs preferred stock ($100 par) pays a $14 dividend and is selling for $110. The firm would have a $5 floatation cost if it sold preferred stock today. If SCRPC sold additional common stock, the floatation cost and the decline in value would be about 20% of the current price. Exhibit VI: Find the WACC (using Retained Earnings) Component After Tax Cost Market Value (000s) Weight Contribution Notes Payable ___ ___ ___ ___ Bonds ___ ___ ___ ___ Preferred Stock ___ ___ ___ ___ Common Stock ___ ___ ___ ___ TOTAL ___ Exhibit VII: Find the WACC (using New Common Stock) Component After tax Cost Market Value (000s) Weight Contribution Notes Payable ___ ___ ___ ___ Bonds ___ ___ ___ ___ Preferred Stock ___ ___ ___ ___ Common Stock ___ ___ ___ ___ TOTAL ___

Question: Estimate the cost for common stock using the Gordon Model (dividend valuation model).

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