Reference no: EM131064922
A) Assume the following capital structure for Morgan Corp.
Debt: 35%
Preferred Stock: 15%
Common Equity: 50%
The following facts are also provided:
Bond yield to maturity: 9%
Corporate tax rate: 35%
Dividend, preferred stock: $8.50
Price, preferred stock: $100
Flotation cost, preferred stock: $2
Divident, common stock: $1.20
Price, common stock: $30
Growth Rate, common stock: 9%
Compute the weighted average cost of capital.
B) If there is $30 million in retained earnings, at what dollar value will the marginal cost of capital go up? If flotation cost on common stock is $1.50, what will be the cost of the new common stock?
Show all work please.
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