The firm's marginal tax rate is 35%.  The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually. Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share.  Skye's earnings per share last year were $3.20.  The common stock sells for $55.00, last year’s dividend (D0) was $2.10, and a flotation cost (i.e, f ) of 10% would be required to sell new common stock.  Security analysts are projecting that the common dividend will grow at an annual rate of 9%.  The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516.      Question: Calculate the cost of preferred stock (rp )  (use excel format and show spreadsheet inputs)

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
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The firm's marginal tax rate is 35%.  The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually.

Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share. 

Skye's earnings per share last year were $3.20.  The common stock sells for $55.00, last year’s dividend (D0) was $2.10, and a flotation cost (i.e, f ) of 10% would be required to sell new common stock.  Security analysts are projecting that the common dividend will grow at an annual rate of 9%. 

The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516.     

Question: Calculate the cost of preferred stock (rp )  (use excel format and show spreadsheet inputs)

CONDENSED BALANCE SHEET FOR SKYE COMPUTER COMPANY
FY2015
$2,000
3,000
$5,000
Current assets
Net fixed assets
Total assets
Total debt
Preferred stock
Common stock
Retained earnings
Total common equity
Total liabilities & equity
$2,100
250
1,300
1,350
$2,650
$5,000
Transcribed Image Text:CONDENSED BALANCE SHEET FOR SKYE COMPUTER COMPANY FY2015 $2,000 3,000 $5,000 Current assets Net fixed assets Total assets Total debt Preferred stock Common stock Retained earnings Total common equity Total liabilities & equity $2,100 250 1,300 1,350 $2,650 $5,000
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