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Calculate the firm for cost of preferred stock

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Reference no: EM132595895

Assume the following particulars relating to Guma Company

  • The company capital structure at market value comprises bond $10,000; preferred stock $15,000; common stock $55,000; and retained earnings of $20,000.
  • The firm's preferred stock currently sells for $80 and pays a dividend of $9 per share. The preferred stock has no stated liquidation date.
  • Guma's common stock currently sells for $50 per share, at a floatation cost of $10. The firm recently paid a dividend of $4 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 8% per year.
  • The firm's before tax cost of debt is 10%, the tax rate is 40%

Required:

Question 1: Calculate the firm's:

a) Cost of preferred stock

b) Cost of common stock

c) Cost of retained earnings

d) Cost of debt

e) Weighted average cost of capital

Reference no: EM132595895

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