Project 4 2.The Killington Corporation has planned capital expenditures of $40 m
ID: 2642838 • Letter: P
Question
Project 4
2.The Killington Corporation has planned capital expenditures of $40 million for the upcoming fiscal year. Killington's stock is currently selling at $22 per share. Flotation costs are 10%. The earnings growth rate has been steady and is expected to continue. The last dividend paid was $0.97 per share and is expected to grow at a rate of 9%. The company tax rate is 40%. The Mortgage bonds are currently selling for $1,073.61. The bonds are 7%, $1,000 par and pay interest annually. They will mature in 10 years.
Compute the after-tax cost of each component of capital.
a) Bonds =
b) Retained Earnings =
c) New Common Stock =
Explanation / Answer
A) Yield 6.00% After tax cost Yield*(1-tax) 3.60% C) P D0*(1+g)/(Ke-g) Ke 14% B) Cost of retained earning ke-floating cost 3.81%
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