Question

Edna Recording​ Studios, Inc., reported earnings available to common stock of

​$4 comma 400 comma 0004,400,000

last year. From those​ earnings, the company paid a dividend of

​$1.251.25

on each of its

1 comma 000 comma 0001,000,000

common shares outstanding. The capital structure of the company includes

2525​%

​debt,

2020​%

preferred​ stock, and

5555​%

common stock. It is taxed at a rate of

2424​%.

a.  If the market price of the common stock is

​$4545

and dividends are expected to grow at a rate of

88​%

per year for the foreseeable​ future, what is the​ company's cost of retained earnings

financing​?

b.  If underpricing and flotation costs on new shares of common stock amount to

​$66

per​ share, what is the​ company's cost of new common stock

financing​?

c.  The company can issue

​$2.422.42

dividend preferred stock for a market price of

​$2525

per share. Flotation costs would amount to

​$66

per share. What is the cost of preferred stock

financing​?

d.  The company can issue

​$1 comma 0001,000​-par-value,

99​%

​coupon,

88​-year

bonds that can be sold for

​$1 comma 1401,140

each. Flotation costs would amount to

​$2020

per bond. Use the estimation formula to figure the approximate​ after-tax cost of debt​ financing?

e.  What is the

WACC​?

Answer 1