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Question - The capital structure for Magellan Corporation is shown below. Currently, flotation costs are 13% of market value for a new bond issue and $3 per share for preferred stock. The dividends for common stock were $2.50 last year and have an estimated annual growth rate of 6%. Market prices are $1,020 for bonds, $20 for preferred stock, and $30 for common stock. Assume a 34% tax rate.
Financing Type % of Future Financing
Bonds (8%, $1k par, 16 year maturity) 36%
Common equity 45%
Preferred stock (5k shares outstanding, $50 par, 19% $1.50 dividend)
Total 100%
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