Reference no: EM132071428

Edna Recording Studios, Inc., reported earnings available to common stock of $4,800,000 last year. From those earnings, the company paid a dividend of $1.22 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 15% preferred stock, and 50%common stock. It is taxed at a rate of 35%.

a. If the market price of the common stock is $37 and dividends are expected to grow at a rate of 7% per year for the foreseeable future, what is the company's cost of retained earnings financing.

b. If underpricing and flotation costs on new shares of common stock amount to $7 per share, what is the company's cost of new common stock financing.

c. The company can issue $1.81 dividend preferred stock for a market price of $30 per share. Flotation costs would amount to $2 per share. What is the cost of preferred stock financing?

d. The company can issue $1,000-par-value,12% coupon, 9-year bonds that can be sold for $1,150 each. Flotation costs would amount to $20 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing?

e. What is the WACC??