Calculate the cost of preferred stock and common stock

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Reference no: EM13727145

Apple Corporation wants to issue bonds with a 9% coupon rate, a face value of $1,000, and 12 years to maturity. Apple estimates that the bonds will sell for $1,090 with issuing (floatation costs equal $15 per bond – this reflects an 8% before tax cost of debt on the bonds. Apple’s preferred stock currently sells for a price of $30 per share, and their dividend payment is 8% on these $100 par value preferred stocks. Apple’s common stock has a beta of 1.4. The risk free rate of return associated with their common stock is 4%. The average return of the market as a whole for common stock is 10%. Apple’s marginal tax rate is 35%. Apple’s capital structure is 40% debt, 50% common equity, and 10% preferred stock.

Calculate the after-tax cost of debt assuming Apple’s bonds are its only debt

Calculate the cost of preferred stock

Calculate the cost of common stock/equity

Calculate the weighted average cost of capital for Apple’s 30 million capital budget

Reference no: EM13727145

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