New Common Stock
Market analysis has determined that given the positive history of the firm,
new common stock can be sold at $29 per share, with the last dividend being
paid of $2.25 per share. The growth rate on any new common stock has
been estimated at a constant rate of 15% per year for the next 3 years.
Preferred Stock
New Preferred Stock can be issued with an annual dividend of 10% of par
and is paid annually and currently would sell for $90 per share.
Questions: Address all of the following questions in a brief but thorough manner.
What is the after tax cost of new common stock, assuming constant growth in each of the next 3 years?
What would the dividend yield in each of the first three years if the growth rate is 12%?
What is the after tax component cost of new debt today?
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