36. The firm has target capital structure of 60% common stock, 30% debt and 10%
ID: 2703039 • Letter: 3
Question
36. The firm has target capital structure of 60% common stock, 30% debt and 10% preferred stock. The firm wishes to issue new 30 years bond with 10% coupon rate. The flotation cost will be $20 and the bond has to be sold at 5% discount. To issue new preferred stock the company has to pay $2 as flotation cost. The market value of preferred stock is $8 and the stock will pay $1 dollar dividend. New common stock will cost the company $2. The expected dividend is $3 and the market value is $19. Tax rate is 40%. What is the company 36. The firm has target capital structure of 60% common stock, 30% debt and 10% preferred stock. The firm wishes to issue new 30 years bond with 10% coupon rate. The flotation cost will be $20 and the bond has to be sold at 5% discount. To issue new preferred stock the company has to pay $2 as flotation cost. The market value of preferred stock is $8 and the stock will pay $1 dollar dividend. New common stock will cost the company $2. The expected dividend is $3 and the market value is $19. Tax rate is 40%. What is the companyExplanation / Answer
the company
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