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Calculate the costs of the various components

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Question - The Accidental Petroleum Company is trying to determine its weighted average cost of capital for use in making several investment decisions. The firm's bonds were issued 6 years ago and have 14 years left until maturity. They carried an 8% coupon rate paid annually and are currently selling for $962.50.

The firm's preferred stock carries a $4.60 dividend and is currently selling at $42.50 per share. Accidental's investment dealer has stated that issue costs for new preferred will be 50 cents per share.

The firm has significant retained earnings but will also need to sell new common stock to finance the projects it is now considering. Accidental Petroleum common stock is expected to pay a $2.50 per share dividend next year and is expected to maintain an 8% growth rate for the foreseeable future. The stock is currently priced at $50 per share, but new common stock will have flotation costs of 60 cents per share.

Calculate the costs of the various components of Accidental Petroleum's capital. The firm's tax rate is 44%.

Reference no: EM133135338

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