14. How much would $5,000 due in 25 years be worth today if the discount rate we
ID: 2719295 • Letter: 1
Question
14. How much would $5,000 due in 25 years be worth today if the discount rate were 5.0%?
a. $1,476.52
b. $1,124.16
c. $1,183.33
d. $1,245.61
e. $1,311.17
15. Bosio Inc.'s perpetual preferred stock sells for $97.50 per share and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?
a. 8.72%
b. 9.08%
c. 9.44%
d. 9.82%
e. 10.22%
Explanation / Answer
Q14 a. $1,476.52 Amount due in 25 Years 5,000.00 PVF for 25th Year 0.2953 Present Value today = 5000*.2953 1,476.51 Time PVF 1.00 0.9524 2.00 0.9070 3.00 0.8638 4.00 0.8227 5.00 0.7835 6.00 0.7462 7.00 0.7107 8.00 0.6768 9.00 0.6446 10.00 0.6139 11.00 0.5847 12.00 0.5568 13.00 0.5303 14.00 0.5051 15.00 0.4810 16.00 0.4581 17.00 0.4363 18.00 0.4155 19.00 0.3957 20.00 0.3769 21.00 0.3589 22.00 0.3418 23.00 0.3256 24.00 0.3101 25.00 0.2953 Q15 b. 9.08% Price of preferred stock 97.50 Floattaion Cost @4%(97.50*.04) 3.90 Net proceeds = 97.50-3.90 93.60 Cost of preferred stock = 8.50/93.60 Cost of preferred stock = 9.08%
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