Calculate the cost of bonds and the cost of preferred stock

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Reference no: EM133347007

Question 1. The Simma products corporations have the following capital structure, which it considers optimal: Bonds, 7% (at par) Br 300,000 Preferred stock, Br.5 240,000 Common stock 360,000 Retained earnings 300,000 1,200,000 Additional Information: Dividends on common stock are currently Br 3 per share and are expected to grow at constant rate of 6%. Market price of common stock is Br 40 and the preferred stock is selling at Br50. Flotation cost on new issues of common stock is 10%. The interest on bonds is paid annually and the company's tax rate is 40%. Calculate: (a) the cost of bonds (b) the cost of preferred stock (c) the cost of retained earnings (d) The cost of new common stock (e) the weighted average cost of capital.

Question 2. Complete the following financial statements of Omega Company on the basis of the ratios given below. Omega Company Profit and loss account For the year ended June 30 , 2012 Sales 2,000,000 Cost of Goods Sold 600,000 Gross Profit 1,400,000 Operating Expenses 1,190,000 Earnings Before Interest and Tax Debenture Interest 10,000 Income Tax (50%) Net Profit Omega Company Balance sheet For the year ended June 30 2012 Assets Liabilities Cash Sundry creditors 60,000 Stocks

Reference no: EM133347007

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