27. Make the same investment as in investment in problem 26 but place the $1,200

Question

27. Make the same investment as in investment in problem 26 but place the $1,200 in the account at the beginning of each year. 28, J. Ross and Sons, Inc has a target capital structure that calls for 40% debt, 10% preferred stock and 50% common equity. The firms current after-tax cost of debt is 6% and it can sell as much debt as it wishes at this rate. The firm's preferred stock current sells for $90 a share and pays a dividend of $10 per share, however, the firm will only net $80 per share from the sale of the new preferred stock. Ross expects to retain $15 ,000 in earnings over the next year. Ross' common stock currently sells for $40p share, but the firm will only next $34 per share from the sale of the new common stoc Th e firm recently paid a dividend of $2 per share on its common stock, and investors xpect the dividend to grow indefinitely at a constant rate of 10% per year a. What is the Cost of Capital for Preferred Stock? b. What is the cost of capital for Common Stock?

Explanation / Answer

27.

FV=(1200*(((1+10%)^10-1)/10%))*(1+10%)=21037.40

formula used above Future value of annuity beginning of the year=(P*(((1+r)^n-1)/r))*(1+r)

the above is the answer

we do only one question based on Chegg rule.

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