Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 50%long-term debt, 15% preferred stock, and 35% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%.Debt The firm can sell for $1030 a 17-year, $1,000-par-value bond paying annual interest at a 9.00% coupon rate. A flotation cost of 3% of the par value is required.Preferred stock 10.00% (annual dividend) preferred stock having a par value of $100 can be sold for $94. An additional fee of $6 per share must be paid to the underwriters.Common stock The firm's common stock is currently selling for $50 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $3.70 dividend payment, Do, that the company just recently made. If thecompany wants to issue new new common stock, it will sell them $2.50 below the current market price to attract investors, and the company will pay $3.50 per share in flotation costs.a. Calculate the after-tax cost of debt.b. Calculate the cost of preferred stock.c. Calculate the cost of common stock (both retained earnings and new common stock).d. Calculate the WACC for Dillon Labs.a. The after-tax cost of debt using the bond's yield to maturity (YTM) is%. (Round to two decimal places.)←

As per the question, subpart-a is specifically asked to answer. Hence as per the honoring guidelines…

Answered: a. The after-tax cost of debt using the…

Business

Finance

a. The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 4P

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Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 15% preferred stock, and 55% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%. Debt The firm can sell for $1015 a 10-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.50% (annual dividend) preferred stock having a par value of $100 can be sold for $96. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $5.07 dividend payment,…
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 15% preferred stock, and 55% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%. Debt The firm can sell for $1025 a 18-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 4% of the par value is required. Preferred stock 10.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92. An additional fee of $2 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, Do, that the company just recently…
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 50% long-term debt, 15% preferred stock, and 35% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 29%. Debt The firm can sell for $1015 a 20-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 9.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $2 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $3.00 ten years ago to the $5.63 dividend payment,…
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earings, new common stock, or both). The firm's tax rate is 24%. Debt The firm can sell for $1000 a 11-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 4% of the par value is required. Preferred stock 8.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $3 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.25 ten years ago to the $4.43 dividend payment, Do. that the company just recently…
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Calculation of individual costs and WACC: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 10% preferred stock, and 55% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 28%. debt The firm can sell for $1010 a 14-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $88. An additional fee of$4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $70 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.25 ten years ago to the $3.67 dividendpayment, D0, that…
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Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 10% preferred stock, and 60% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 23%. Debt : The firm can sell for $1030 a 14-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock: 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92.An additional fee of $2 per share must be paid to the underwriters. Common stock: The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, D0, that the company just recently made.…
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 26%. Debt The firm can sell for $1005 a 13-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.92 dividend payment, D0, that the company just recently made. If…
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 26%. Debt The firm can sell for $1005 a 13-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.92 dividend payment, D0, that the company just recently made. If…