Question

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 $1000 a 18-year, $1 comma 000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 3% of the par value is required. Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $96. 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 $2.00 ten years ago to the $3.75 dividend payment, Upper D 0, that the company just recently made. If the company 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 $3.00 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 nothing%. (Round to two decimal places.)

Answer #1

Please refer to the solutions of each part below:

Part a.

Part b:

Part c.

Part d.

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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: 40 % long-term debt, 25 % 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
$1030...

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 26%.
Debt The firm can sell for $1020 a 13-year, $1,000-par-value
bond paying...

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, 10% preferred stock, and 60%
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 13-year, $1, 000-par-value...

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, 10% preferred stock, and 60%
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 13-year, $1, 000-par-value...

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 13-year,
$1,000-par-value bond paying annual interest at a
7.00% ...

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,
25%
preferred stock, and
35%
common stock equity (retained earnings, new common stock, or
both). The firm's tax rate is
22%.
Debt The firm can sell for
$1020
a
20-year,
$1,000-par-value
bond paying annual interest at a
8.00%...

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: 45% long-term debt, 20% preferred
stock, and 35% common stock equity (retained earnings, new
common stock, or both). The firm's tax rate is 20%.
Debt The firm can sell for $965 a 13-year,
$1,000-par-value bond paying annual interest at a 7.00%...

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, 20 % preferred
stock, and 30 % common stock equity (retained earnings, new common
stock, or both). The firm's tax rate is 20 %. Debt The firm can
sell for $975 a 14 -year, $1 comma 000...

Calculation of individual costs and WACC Lang Enterprises is
interested in measuring its overall cost of capital. Current
investigation has gathered the following data. The firm is in the
40% tax bracket
Debt The firm can raise debt by selling $1,000-par-value, 9%
coupon interest rate, 18-year bonds on which annual interest
payments will be made. To sell the issue, an average discount of
$20 per bond would have to be given. The firm also must pay
flotation costs of $20...

Calculation of individual costs and
WACC Lang Enterprises is interested in
measuring its overall cost of capital. Current investigation has
gathered the following data. The firm is in the 27% tax
bracket.
Debt The firm can raise debt by
selling $1,000-par-value, 5% coupon interest rate, 15-year
bonds on which annual interest payments will be made. To sell
theissue, an average discount of$35 per bond would have to be
given. The firm also must pay flotation costs of $25 per bond.
Preferred stock The...

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