What is an estimate of growth company cost of equity

Reference no: EM131978835

Question: Growth Company's current share price is $19.90 and it is expected to pay a $1.25 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 3.8% per year.

a. What is an estimate of Growth Company's cost of equity?

b. Growth Company also has preferred stock outstanding that pays a $1.90 per share fixed dividend. If this stock is currently priced at $28.10, what is Growth Company's cost of preferred stock?

c. Growth Company has existing debt issued three years ago with a coupon rate of 5.6%. The firm just issued new debt at par with a coupon rate of 6.5%. What is Growth Company's cost of debt?

d. Growth Company has 5.4 million common shares outstanding and 1.3 m on preferred shares outstanding, and its equity has a total book value of $50.3 million. Its liabilities have a market value of $19.7 million. If Growth Company's common and preferred shares are priced as in parts (a) and (b), what is the market value of Growth Company's assets?

e. Growth Company faces a 40% tax rate. Given the information in parts (a) through (d), and your answers to those problems, what is Growth Company's WACC?

Reference no: EM131978835

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