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Problem: The Mays Co. has established a target capital structure of 45 percent debt, 10 percent preferred, and 45 percent common equity. Mays must pay a 6 percent flotation fee if it issues new common stock. The current market price of the firm's stock is $48; its last dividend was $0.68, and its expected growth rate is 13 percent. The firm's projected net income for next year is $158 million and it maintains a dividend payout ratio of 25 percent. The capital budget for next year is $200,000,000.
a. What is the percentage cost of retained earnings?
b. What is the percentage cost of a new common stock issue?
c. What is the maximum capital budget that Mays can support with retained earnings?
d. Given the $200,000,000 budget, what will be Mays' marginal percentage cost of common equity
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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