Question

1. (Cost of Debt) CougarCo has the option to issue 15-year bonds at $1,300 flotation cost...

1. (Cost of Debt) CougarCo has the option to issue 15-year bonds at $1,300 flotation cost of 7% and a coupon rate of 6% (paid annually) with a face value of $1,000. What is CougarCo firm’s cost of debt prior to tax?

2. (Cost of Preferred Stock) The preferred stock of CougarCo will sell for $43.37 and pay a $3.75 dividend. The net price of the security after flotation costs will be $39.28. What is the cost of capital for the preferred stock?

3. (Cost of Equity) CougarCo can issue common stock at a price of $67.75. The floating cost is 17% and the firm recently paid a dividend of $2.28 and has a projected growth rate of 5%. What is CougarCo firm’s cost of equity?

(Weighted Average Cost of Capital) CougarCo is a start-up company. Based on what you calculated on questions 2-4, the company decides to finance itself by issuing 1,000 bonds, 5,000 shares of preferred stock, and 13,000 shares of common stock. Assuming this will represent all of CougarCo’s financing, calculate the firm’s after-tax WACC (assume a tax rate of 34%). Common stock is selling for $56.23

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. (Cost of Debt) CougarCo has the option to issue 15-year bonds at $1,300 flotation cost...
1. (Cost of Debt) CougarCo has the option to issue 15-year bonds at $1,300 flotation cost of 7% and a coupon rate of 6% (paid annually) with a face value of $1,000. What is CougarCo firm’s cost of debt prior to tax? =RATE(15,6%*1000,-1300*93%,1000) = 4.11% 2. (Cost of Preferred Stock) The preferred stock of CougarCo will sell for $43.37 and pay a $3.75 dividend. The net price of the security after flotation costs will be $39.28. What is the cost...
The Cost of Debt and Flotation Costs Suppose a company will issue new 20-year debt with...
The Cost of Debt and Flotation Costs Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The issue price will be $1,000. The tax rate is 40%. If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt? What if the flotation costs were 10% of the bond issue?
The Cost of Equity and Flotation Costs Messman Manufacturing will issue common stock to the public...
The Cost of Equity and Flotation Costs Messman Manufacturing will issue common stock to the public for $30. The expected dividend and the growth in dividends are $4.00 per share and 5%, respectively. If the flotation cost is 11% of the issue's gross proceeds, what is the cost of external equity, re? Round your answer to two decimal places.   __% The Cost of Debt and Flotation Costs. Suppose a company will issue new 25-year debt with a par value of...
The Cost of Debt and Flotation Costs. Suppose a company will issue new 25-year debt with...
The Cost of Debt and Flotation Costs. Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. The issue price will be $1,000. The tax rate is 35%. If the flotation cost is 5% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs. Round your answer to two decimal places.    What if the flotation...
Your company issues bonds at a price of $925 and a flotation cost of 1%. The...
Your company issues bonds at a price of $925 and a flotation cost of 1%. The bond has an annual coupon rate of 5% and a maturity of 10 years. The corporate tax rate is 40%.Common stock sells at $30 per share and new issues would have a flotation cost of $2. The last dividend paid was $3 per share and the growth rate of dividends is 6%. Your firm’s capital structure is 20% debt, 20% retained earnings, and 60%...
Your company issues bonds at a price of $925 and a flotation cost of 1%. The...
Your company issues bonds at a price of $925 and a flotation cost of 1%. The bond has an annual coupon rate of 5% and a maturity of 10 years. The corporate tax rate is 40%.Common stock sells at $30 per share and new issues would have a flotation cost of $2. The last dividend paid was $3 per share and the growth rate of dividends is 6%. Your firm’s capital structure is 20% debt, 20% retained earnings, and 60%...
Sun Products Company (SPC) uses only debt and equity. It can issue bonds at an after-flotation...
Sun Products Company (SPC) uses only debt and equity. It can issue bonds at an after-flotation interest rate of 12 percent so long as it finances at its target capital structure, which calls for 45 percent debt and 55 percent common equity. Its last dividend was $2.40, its expected constant growth rate is 5 percent, and its stock sells for $24. A flotation cost of 7% would be required to issue new common stock. SPC’s tax rate is 40 percent....
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20...
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20 years. Compute the current price of the bonds if the present yield to maturity is 7% 2.    Exodus Company has $1,000 par value bonds outstanding at 6% interest. The bonds will mature in 15 years. Compute the current price of the bonds if the current interest rate is 4%. 3.     The preferred stock of Ultra Corporation pays an annual dividend of $7.00. It has a required...
Boylan Metalworks Inc. has the following elements of capital: Debt: Boylan issued $1,000, 30-year bonds 10...
Boylan Metalworks Inc. has the following elements of capital: Debt: Boylan issued $1,000, 30-year bonds 10 years ago at a coupon rate of 9%. Five thousand bonds were sold at par. Similar bonds are now selling to yield 12%. Preferred Stock: Twenty thousand shares of 10% preferred stock were sold five years ago at their $100 par value. Similar securities now yield 13%. Equity: The Company was originally financed with the sale of 1,000,000 shares at $10 per share. The...
A firm is considering selling $20 million worth of 30-year, 10% coupon bonds with a par...
A firm is considering selling $20 million worth of 30-year, 10% coupon bonds with a par value of $1,000. Because bonds with similar risk earn return greater than 10%, the firm must sell the bonds for $990 to compensate for the lower coupon interest rate. The flotation costs are 3% of par. Calculate the before-tax cost of debt. Using the scenario in part Question #1, calculate the after-tax cost of debt if the firm’s tax rate is 40% A firm...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT