What is the cost of debt, preferred stock and common equity for Forecasters R US? What...

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Finance

What is the cost of debt, preferred stock and common equity forForecasters R US? What is the WACC: The firm is in the 40% taxbracket. The optimal capital structure is listed below: Brieflydiscuss your results and what they represent.
Source of Capital
Weight
Long-Term Debt
25%
Preferred Stock
20%
Common Stock
55%
Debt: The firm can issue $1,000 par value, 8% coupon interestbonds with a 20-year maturity date. The bond has an averagediscount of $30 and flotation costs of $30 per bond. The sellingprice is $1,000.
Preferred Stock: The firm can sell preferred stock with adividend that is 8% of the current price. The stock costs $95. Thecost of issuing and selling the stock is expected to be $5 pershare.
Common Stock: The firm’s common stock is currently selling for$90 per share. The firm expects to pay cash dividends of $7 pershare next year. The dividends have been growing at 6%. The stockmust be discounted by $7 and flotation costs are expected to amountto $5 per share.

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3.6 Ratings (386 Votes)

Weight of equity EA Weight of equity WE055 Weight of debt DA Weight of debt 025 WD025 Weight of preferred equity 1DAEA Weight of preferred equity 1025 055 See Answer

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What is the cost of debt, preferred stock and common equity forForecasters R US? What is the WACC: The firm is in the 40% taxbracket. The optimal capital structure is listed below: Brieflydiscuss your results and what they represent.Source of Capital WeightLong-Term Debt25%Preferred Stock20%Common Stock55%Debt: The firm can issue $1,000 par value, 8% coupon interestbonds with a 20-year maturity date. The bond has an averagediscount of $30 and flotation costs of $30 per bond. The sellingprice is $1,000.Preferred Stock: The firm can sell preferred stock with adividend that is 8% of the current price. The stock costs $95. Thecost of issuing and selling the stock is expected to be $5 pershare.Common Stock: The firm’s common stock is currently selling for$90 per share. The firm expects to pay cash dividends of $7 pershare next year. The dividends have been growing at 6%. The stockmust be discounted by $7 and flotation costs are expected to amountto $5 per share.

Source of Capital	Weight
Long-Term Debt	25%
Preferred Stock	20%
Common Stock	55%