What is the cost of new common stock

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Reference no: EM131989785

(i) Describe and interpret the assumptions related to the problem.

(ii) Apply the appropriate mathematical model to solve the problem.

(iii) Calculate the correct solution to the problem, provide excel calculations.

1. XYZ Company is undergoing a major expansion. The expansion will be financed by issuing new 16-year, $1,000 par, 8% annual coupon bonds. The market price of the bonds is $1,020 each. Flotation expense on the new bonds will be $60 per bond. The marginal tax rate is 35%. What is the post-tax cost of debt for the newly-issued bonds?

2. ABC Corporation will issue new common stock to finance an expansion. The existing common stock just paid a $1.25 dividend, and dividends are expected to grow at a constant rate of 9% indefinitely. The stock sells for $48, and flotation expenses of 5% of the selling price will be incurred on new shares. What is the cost of new common stock?

3. XYZ Inc. will issue new common stock to finance an expansion. The existing common stock just paid a $2.50 dividend, and dividends are expected to grow at a constant rate of 6% indefinitely. The stock sells for $32, and flotation expenses of 6% of the selling price will be incurred on new shares. What is the cost of internal equity?

Reference no: EM131989785

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