Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 8% coupon bond with an expected selling price of $1025. Flotation costs would be $55 per bond. Preferred Stock: Builtrite could sell a $46 par value preferred with an 8% coupon for $38 a share. Flotation costs would be $6 a share. Common stock: Currently, the stock is selling for $62 a share and has paid a $4.82 dividend. Dividends are expected to continue growing at 13%. Flotation costs would be $3.75 a share and Builtrite has $350,000 in available retained earnings. Assume a 35% tax bracket. Their after-tax cost of internal common (retained earnings) is: 22.51% 21.78% 21.34% 21.05%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 8% coupon bond with an expected selling price of
$1025. Flotation costs would be $55 per bond.
Preferred Stock: Builtrite could sell a $46 par value preferred with an 8% coupon for $38 a share. Flotation costs would
be $6 a share.
Common stock: Currently, the stock is selling for $62 a share and has paid a $4.82 dividend. Dividends are expected to
continue growing at 13%. Flotation costs would be $3.75 a share and Builtrite has $350,000 in available retained
earnings.
Assume a 35% tax bracket.
Their after-tax cost of internal common (retained earnings) is:
22.51%
21.78%
21.34%
21.05%
Transcribed Image Text:Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 8% coupon bond with an expected selling price of $1025. Flotation costs would be $55 per bond. Preferred Stock: Builtrite could sell a $46 par value preferred with an 8% coupon for $38 a share. Flotation costs would be $6 a share. Common stock: Currently, the stock is selling for $62 a share and has paid a $4.82 dividend. Dividends are expected to continue growing at 13%. Flotation costs would be $3.75 a share and Builtrite has $350,000 in available retained earnings. Assume a 35% tax bracket. Their after-tax cost of internal common (retained earnings) is: 22.51% 21.78% 21.34% 21.05%
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