Manning Co. is considering a new project. The project has a target capital structure of...
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Manning Co. is considering a new project. The project has a target capital structure of 30% debt, 15% preferred stock, and 55% common equity. Manning Co. has noncallable semiannual bonds outstanding that mature in 11 years with a face value of $1,000, a coupon rate of 12%, and a market price of $1,200. The yield on the companys current bonds is a good approximation of the yield on any new bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pays an annual dividend of $6 at a price of $100 per share.
Davis does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $50 per share, and it is expected to pay a dividend of $2 at the end of next year. Flotation costs will represent 5% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8%, and they face a tax rate of 30%.
a. What is the cost of debt?
b. What is the cost of preferred stock?
c. What is the cost of new common stock?
d. What is the WACC?
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