Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average
cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm�s tax rate is 40%.
Debt The firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond.
Preferred stock Eight percent (annual dividend) preferred stock having a par value of $100 can be sold for $65. An additional fee of $2 per share must be paid to the underwriters.
Debt The firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond.
Preferred stock Eight percent (annual dividend) preferred stock having a par value of $100 can be sold for $65. An additional fee of $2 per share must be paid to the underwriters.
1 answer:
Answer:
<em>You didn't post the complete information of the exercise, I searched the exercise online and tried to ask the most useful question.</em>
Explanation:
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
You might be interested in
Answer:
E. 160,000; 167,500
Explanation:
Direct Materials
Started and complete 120,000
We also need to add the ending WIP which count entirely because the materials are added completely.
The beginning WIP has materials added completely already. It required no extra work.
120,000 +40,000 =160,000
Conversion
Started and complete 120,000
ending WIP 40,000 x 1/4 = 10,000
beginning WIP 50,000 X3/4 = 37,500
total 167,500
we add the ending WIP
and the unfinished beginning WIP
it has 1/4 completed so 3/4 are unfinished