Reference no: EM13255851
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 40%.
DebtThe firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond.
Preferred stock Eight percent (annual dividend) preferred stock having a par value of $100 can be sold for $65. An additional fee of $2 per share must be paid to the underwriters.
Common stock The firm's common stock is currently selling for $50 per share.
The dividend expected to be paid at the end of the coming year (2013) is $4. Its dividend payments, which have been approximately 60% of earnings per share in each of the past 5 years, were as shown in the following table.
Year Dividend
2012 $3.75
2011 3.50
2010 3.30
2009 3.15
2008 2.85
It is expected that to attract buyers, new common stock must be underpriced $5 per share, and the firm must also pay $3 per share in flotation costs. Dividend payments are expected to continue at 60% of earnings. (Assume that rr = rs.)
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock.
d. Calculate the WACC for Dillon Labs
|
Determine the maximum voltage induced in the coil
: A flat coil enclosing an area of 0.10 m2 is rotating at 65 rev/s, what is the maximum voltage induced in the coil
|
|
Find the net proceeds from sale of the bond
: Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30 per bond will be incurred in th..
|
|
What is the maximum irrigation flow rate that could use
: Rain harvesting is a means of water conservation. This real-life problem requires computation and critical thinking involving a practical solution. Apply the problem solving approach studied in class to this rain harvesting and irrigation problem.
|
|
How to calculate the atom economy
: Calculate the % atom economy for the following two methods for converting benzene, C6H6, to aniline, C6H5NH2.Method 1: C6H6 + (CH3)3SiN3 + 2 F3CSO3H + NaOH
|
|
Calculate the after-tax cost of debt
: DebtThe firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond.
|
|
What are the ethical issues related to the offer
: What are the ethical issues related to the offer made by the state troopers? How should ABC Freightways respond to these ethical issues?
|
|
Determine what is the velocity of the blood
: Suppose it is known that a 5MHz transducer axis makes an angle of 30 degrees relative to the direction of motion of blood in a vessel. If the Doppler frequency is measured to be +500Hz, what is the velocity of the blood
|
|
How to determine the ph of the solution
: A solution (volume = 100.0 ml) contains 0.27 M HCOOH(formic acid, Ka=1.8*10^-4) and 0.39 M KHCOO. a. Determine the pH of the solution b. We add 4.00 ml of 4.0 M HNO3 to this solution. Determine the new pH.
|
|
Calculate the capacitance of the second capacitor
: a capacitor is connected across the terminals of an ac generator that has a frequency of 448 Hz and supplies a voltage of 21 V. Find the capacitance of the second capacitor.
|