jury company wants to calculate the component costs in its capital structure. co

Question

jury company wants to calculate the component costs in its capital structure. common stock currently sells for $ 33 And is expected to pay a dividend of $50. Jury's dividend growth rate is 8% and flotation cost is $1.25. preferred stock sells for $40, pays a dividend $3,00, and carries a flotation cost of $1.10. Jury Company bonds yield 7% in the market. Jury is in the 30% tax bracket. Calculate the cost of debt, cost of new common stock, cost of preferred stock, and cost of retained earnings jury company wants to calculate the component costs in its capital structure. common stock currently sells for $ 33 And is expected to pay a dividend of $50. Jury's dividend growth rate is 8% and flotation cost is $1.25. preferred stock sells for $40, pays a dividend $3,00, and carries a flotation cost of $1.10. Jury Company bonds yield 7% in the market. Jury is in the 30% tax bracket. Calculate the cost of debt, cost of new common stock, cost of preferred stock, and cost of retained earnings jury company wants to calculate the component costs in its capital structure. common stock currently sells for $ 33 And is expected to pay a dividend of $50. Jury's dividend growth rate is 8% and flotation cost is $1.25. preferred stock sells for $40, pays a dividend $3,00, and carries a flotation cost of $1.10. Jury Company bonds yield 7% in the market. Jury is in the 30% tax bracket. Calculate the cost of debt, cost of new common stock, cost of preferred stock, and cost of retained earnings

Explanation / Answer

1)Before Tax Cost of Debt = 7 %

After Tax Cost of Debt = Before Tax Cost of Debt *(1-tax rate)

After Tax Cost of Debt = 7*(1-30%)

After Tax Cost of Debt = 4.90%

2) cost of new common stock = Expected Dividend / (Current Share Price - Floatation Cost) + Growth rate

cost of new common stock = 50/(33-1.25) + 8%

cost of new common stock = 165.48%

3) Cost of Preferred Stock = 3/(40-1.10)

Cost of Preferred Stock = 7.71%

4) cost of retained earnings = Expected Dividend / (Current Share Price ) + Growth rate

cost of retained earnings = 50/33 + 8%

cost of retained earnings = 159.52%

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