The firm’s preferred shares sell for $60 per share, and they pay $6 each year in

Q: The firm’s preferred shares sell for $60 per share, and they pay $6 each year in

3. cost of preferred stock = 6/60 = 10% 4. N = 5 PMT = 100 FV = 1000 PV = -1000*0.85 = 850 use rate funciton in Excel and multiply by (1 - 0.34) cost of debt = 9.51% 5. WACC = weight of equity*cost of equity + weight of debt*cost of debt + weight of preferred shares*cost of preferred shares all the inputs have not been provided for 5

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Question

The firm’s preferred shares sell for $60 per share, and they pay $6 each year in dividends. The firm does not plan to issue new preferred stock next year.

3. Find the cost of preferred stock.

The flotation cost for bonds is 15%, or $150 per $1000 face value. The marginal tax rate is 34%.

Find the after-tax cost of debt if McNeil issues new bonds priced at par with term to maturity of 5 years and a 10% coupon rate.

Find the WACC if internal equity is used. Find the WACC if external equity is used.

What is the breakpoint for equity?

Explanation / Answer

3. cost of preferred stock = 6/60 = 10%

N = 5

PMT = 100

FV = 1000

PV = -1000*0.85 = 850

use rate funciton in Excel and multiply by (1 - 0.34)

cost of debt = 9.51%

5. WACC = weight of equity*cost of equity + weight of debt*cost of debt + weight of preferred shares*cost of preferred shares

all the inputs have not been provided for 5

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The firm’s preferred shares sell for $60 per share, and they pay $6 each year in

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