(Cost of equity) The common stock for the Bestsold Corporation sells for $59. If a new issue is sold, the flotation costs are estimated to be 12 percent. The company pays 80 percent of its earnings in dividends, and a $6.40 dividend was recently paid. Earnings per share 6 years ago were $6.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 6 years. The firm’s marginal tax rate is 37 percent. Calculate the cost of (a) internal common equity and (b) external common equity. a. What is the firm’s cost of internal common equity? % (Round to two decimal places.) b. What is the firm’s cost of external common equity? % (Round to two decimal places.) (Capital structure weights) Wingate Metal Products, Inc. sells materials to contractors who construct metal warehouses, storage buildings, and other structures.
The firm has estimated its weighted average cost of capital to be 8.9% based on the fact that its after-tax cost of debt financing was 11 percent and its cost of equity was 8 percent. What are the firm’s capital structure weights (that is, the proportions of financing that came from debt and equity)? What is the proportion of debt financing? % (Round to the nearest whole percentage.) What is the proportion of equity financing? % (Round to the nearest whole percentage.) (Weighted average cost of capital) The capital structure for the Carion Corporation is provided here: 3. The company plans to maintain its debt structure in the future. If the firm has an after-tax cost of debt of 6.9 percent, a cost of preferred stock of 12.7 percent, and a cost of common stock of 17.2 percent, what is the firm’s weighted average cost of capital? The firm’s weighted average cost of capital is %. (Round to two decimal places.) Data Table – X (Click on the following icon in order to copy its contents into a spreadsheet.) CAPITAL STRUCTURE ($000) Bonds Preferred stock Common stock $1,114 276 3,535 $4,925 Print Done
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