50.1K
Verified Solution
Link Copied!
Growth Company's current share price is
$19.85
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
3.7%
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
$1.85
per share fixed dividend. If this stock is currently priced at
$28.25,
what is Growth Company's cost of preferred stock?
c. Growth Company has existing debt issued three years ago with a coupon rate of
5.9%.
The firm just issued new debt at par with a coupon rate of
6.6%.
What is Growth Company's pretax cost of debt?
d. Growth Company has
4.6
million common shares outstanding and
1.1
million preferred shares outstanding, and its equity has a total book value of
$50.3
million. Its liabilities have a market value of
$19.7
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
22%
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.
Answer & Explanation
Solved by verified expert
