[Kapitano]

اللي يحل هذا السؤال اعطيه مكافاتي كلها خههههخ

The Smith Company has 10,000 bonds outstanding. The bonds are selling at 101% of face value,
have a 7% coupon rate, pay interest annually with a 6% before tax yield. There are 500,000
shares of $8 (dividend) preferred stock outstanding with a current market price of $91 a share. In
addition, there are 1.25 million shares of common stock outstanding with a market price of $63.
The common stock paid a total of $1.20 in dividends last year and expects to increase those
dividends by 3% annually. The firm's marginal tax rate is 35%. The risk premium on this stock is
4%.
1. What is the after-tax cost of debt financing? (4 marks)
2. What is the cost of equity based on the dividend growth model? (4 marks)
3. What is the cost of equity based on the risk premium approach? (4 marks)
4. What is the cost of financing using preferred stock? (4 marks)
5. What is the Weighted Average Cost of Capital (WACC)? (4 marks)The Smith Company has 10,000 bonds outstanding. The bonds are selling at 101% of face value,
have a 7% coupon rate, pay interest annually with a 6% before tax yield. There are 500,000
shares of $8 (dividend) preferred stock outstanding with a current market price of $91 a share. In
addition, there are 1.25 million shares of common stock outstanding with a market price of $63.
The common stock paid a total of $1.20 in dividends last year and expects to increase those
dividends by 3% annually. The firm's marginal tax rate is 35%. The risk premium on this stock is
4%.
1. What is the after-tax cost of debt financing? (4 marks)
2. What is the cost of equity based on the dividend growth model? (4 marks)
3. What is the cost of equity based on the risk premium approach? (4 marks)
4. What is the cost of financing using preferred stock? (4 marks)
5. What is the Weighted Average Cost of Capital (WACC)? (4 marks)