Find the after-tax cost of new capital

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Reference no: EM131079726

Two Questions to Answer:

1. Company A wants to raise new capital by selling $8 preferred stock at $75 a share, redeemable at par after 5 years. Company A has a tax rate of 35%. Find the after-tax cost of new capital. Show all work. Show all equations used.

2. Company A has 4 million shares of common stock selling at $45 each. It has $70 million (face value) of bonds, coupon 6%, maturing in 5 years, and selling at 90. The tax rate of Company A is 30%. The difference between the cost of debt and the cost of equity for Company A is estimated to be 6%. Company A also has 2 million shares of preferred stock that pay annual dividends of $5 each. The preferred shareholders get a return that is 2% less than the return of the common shareholders. Find the weighted average cost of capital (WACC) of Company A. Show all work. Show all equations used.

Reference no: EM131079726

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