What is the cost of issuing new common stock

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Reference no: EM131608939

A company’s Balance Sheet (in millions)

Assets Liabilities & Equity

Current $30 Bonds ($1000 Par) 75

Net Fixed $70 Common Stock ($1 par) 25

Total $100 Total $100

The company's bonds have a coupon rate of 9% with semi-annual payments, and currently sell for $1085. The maturity of those bonds is 12 years.

The company’s applicable tax rate is 40%.

The common stock dividend has grown at a steady rate from $0.72 in December 1990 to $1.25 in December 2000. The same growth rate is expected to continue for long time in the future. The floatation cost for new common stocks is 10%.

The market value of the common stock is $12.

Next year is 2001.

a) What is the market value of debt’s weight?

b) What is the market value of equity’s weight?

c) What is the cost of issuing new common stock?

d) What is the WACC of the company using the market weights of capital structure?

Reference no: EM131608939

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