Calculate the weighted average flotation costs

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Reference no: EM133038737

Question - Suppose Westerfield Co. has the following financial information: Debt: Preferred stock: Common stock: 200,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 106% of par and have 20 years to maturity. The coupon rate equals 3%, and the bonds make semiannual interest payments.

250,000 shares of preferred stock outstanding; currently trading for $118 per share and it pays a dividend of $5.45 per share every year.

5,000,000 shares of common stock outstanding; currently trading for $65 per share. Beta equals 0.88.

Market and firm information: The expected return on the market is 10%, the risk-free rate is 2%, the tax rate is 21%.

Required -

1. Calculate the weight of the common stock in the capital structure.

2. Calculate the weight of debt in the capital structure.

3. Calculate the before-tax cost of debt.

4. Calculate the after-tax cost of debt.

5. Calculate the cost of preferred stock.

6. Calculate the cost of common stock.

7. Calculate the weighted average cost of capital.

8. Turtle Co. has a debt-to-equity ratio of 0.85. The company is considering a new plant that will cost $250 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 3%.

a. Calculate the weighted average flotation costs.

b. Calculate the cost of the plant including flotation costs.

Reference no: EM133038737

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