Reference no: EM133173727

Question - Edna Recording Studios, Inc., reported earnings available to common stock of $4,200,000 last year. From those earnings, the company paid a dividend of $1.18 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 40% debt, 15% preferred stock, and 45% common stock. It is taxed at a rate of 23%.

a. If the market price of the common stock is $44 and dividends are expected to grow at a rate of 8% per year for the foreseeable future, what is the company's cost of retained earnings financing?

b. If underpricing and floatation costs on new shares of common stock amount to $9.00 per share, what is the company's cost of new common stock financing?

c. The company can issue $1.92 dividend preferred stock for a market price of $25.00 per share. Flotation costs would amount to $4.00 per share. What is the cost of preferred stock financing?

d. The company can issue $1,000-par-value, 8% coupon, 7-year bonds that can be sold for $1,250 each. Floatation costs would amount to $35.00 per bond. Use the estimation formula to figure the approximate cost of debt financing.

e. What is the WACC?