Reference no: EM133187223

Question - Compute the cost for the following sources of financing for Victoria Company:

1. A $1,000 face value bond with a market price of $970 and a coupon interest rate of 10 percent. Floatation costs for new issue would be approximately 5 percent. The bonds mature in 10 years and the corporate Tax rate is 21 percent.

2. A preferred stock selling for $100 with an annual dividend payment of $8. The floatation cost will be $9 per share. The company's marginal tax rate is 21 percent.

3. Internally generated common stock totaling $4.8 million. The price of the common stock is $75 per share, and the dividend per share was $9.80 last year. The dividend is not expected to change in the future.

4. New common stock when the most recent dividend was $2.80. The company's dividends per share should continue to increase at an 8 percent growth rate into the indefinite future.  The market price of the stock is currently $53; however, floatation costs of $6 per share are expected if the new stock is issued.