Growth Company's current share price is $ 19.95 and it is expected to pay a $ 0.90 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 3.6 % per year.
a. What is an estimate of Growth Company's cost of equity?
b. Growth Company also has preferred stock outstanding that pays a $ 1.95 per share fixed dividend. If this stock is currently priced at $ 27.90, what is Growth Company's cost of preferred stock?
c. Growth Company has existing debt issued three years ago with a coupon rate of 5.5 %. The firm just issued new debt at par with a coupon rate of 6.2 %. What is Growth Company's cost of debt?
d. Growth Company has 5.4 million common shares outstanding and 1.1 million preferred shares outstanding, and its equity has a total book value of $ 50.1 million. Its liabilities have a market value of $ 19.5 million. If Growth Company's common and preferred shares are priced as in parts (a) and (b), what is the market value of Growth Company's assets?
e. Growth Company faces a 40 % tax rate. Given the information in parts (a) through (d), and your answers to those problems, what is Growth Company's WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield.
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