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Calculate the firm cost of newly issued preferred stock

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Reference no: EM132828500

YNWA Bhd. has a targeted capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm has RM1,000 par value bonds outstanding with a 15-year maturity, a 12 percent annual coupon, and a current price of RM1,150. The firm preferred stock currently sells for RM80 a share and pays a dividend of RM10 per share. The firm common stock currently sells for RM40 per share, but the firm will only pay RM34 per share net from the sale of new common stock. The firm recently paid a dividend of RM2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year. The company's tax rate is 40 percent. Assume the firm has sufficient retained earnings to fund the equity portion of its capital budget.

Problem a) Calculate the firm's after-tax cost of debt

Problem b) Calculate the firm's cost of retained earnings

Problem c) Calculate the firm's cost of newly issued common stock

Problem d) Calculate the firm's cost of newly issued preferred stock

Problem e) Calculate the firm's weighted average cost of capital (WACC)

Problem f) Retained earnings are generated by the firm's internal operations and are immediately reinvested to earn more money for the company and its shareholders. Therefore, such funds have zero cost to the company. Do you agree with the statement? Explain)

Reference no: EM132828500

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