Determine cost-weight of re-new equity-debt-preferred stock

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Reference no: EM131071398

The D.L. Jones Co. currently has the following capital amounts. $400,000 of common stock, $500,000 of long-term debt, and $50,000 of preferred stock. Our best estimate is that this is also the target capital structure. If they issue new preferred stock the company can sell 1,000 shares at the par price of $40 less an estimated float of $3.00 per share. If they sell more than 1,000 shares the selling price will most likely be oniy $32 with the same expected float In either case the dividend will be set at $5 per year. New debt will have a coupon rate of 9% paid semi-annually with a 30 year maturity. The net price on bonds will be $940 and the par value is $1000. They are in a 40% tax bracket. It is expected that they will be able to issue as much debt as needed without impacting the price. Common stock is currently selling for $28 and the last dividend was 4.5 and dividends are expected to grow at 8% for the future. The company expects to have $180,000 of retained earnings available in the coming year Floatation fees on common stock are estimated to be 5% of the selling price. Determine the WACC in each of the appropriate ranges. In order to make this clear you need to determine the cost and weight of RE, New equity, debt and preferred stock. At what points) does the WACC increase?

Reference no: EM131071398

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