The capital structure of a company is segregated as follows: Common stock 50%
Preferred stock 20%
Debt 30%
Other details of the company are pointed out below: • Market price of common stock is valued at $28 and common stock recent dividend was $2.50. • Dividend growth rate is 8% and underwriting cost is $1.50 per share.
• Recent preferred stock dividend is $0.30 per share and the market price of preferred stock is valued at $19.
• The floatation cost for preferred stock is $0.25. • Company issued $1,000 par value bonds with 10 years remaining to maturity. • The bonds have an 8% coupon paying annually, with the current market price of bond is valued at $200. No flotation costs incurred. • Company tax rate is 18%.
1. Calculate the cost of common stock (equity). 2. Calculate the cost of preferred stock. 3. Calculate the cost of debt after tax.