Problem 10-4

Davidson CorporationCost of Equity with and without Flotation

a. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your
Dividend
$
2.25
Stock price
$
26.0
Growth
3%
Cost of Equity
12%
b. If the company were to issue new stock, it would incur a 14% flotation cost. What would the cost of equity
answer to two decimal places.
Dividend
$
2.25
Stock price
$
26.0
Growth
3%
Floatation Cost
14%
Cost of Equity
13%

Problem 14-14
Cost of Preferred Stock Including Flotation

Trivoli Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling
will be 8% of the market price, so the net price will be $98.44 per share. What is the cost of the preferred stock,
answer to two decimal places
Dividend
Stock price
Net price
Floatation Cost
Cost of Preferred Stock

$
$
$

11.00
107.0
98.44
8%
11%
Problem 10-2

Tunney Industries can issue perpetual preferred stock at a price of $61.00 a share. The stock would pay a constan
company's cost of preferred stock, rp? Round your answer to two decimal places.
Stock Price
Dividend
Cost of Preferred Stock

$
$

61.00
6.00
10%
Problem 10-1

The Heuser Company's currently outstanding bonds have a 8% coupon and a 13% yield to maturity. Heuser bel
par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Heuser's after-tax cost o
decimal places.
Outstanding Bond
Yield to Maturity
Tax Rate
Cost of Debt

8%
13%
35%
8.45%

345000
190000
55000
210000
400,000

and without Flotation

tained earnings? Round your answer to two decimal places.

hat would the cost of equity from new stock be? Round your
ces.

ng Flotation

The stock is currently selling for $107.00; but flotation costs

e cost of the preferred stock, including flotation? Round your
aces

he stock would pay a constant annual dividend of $6.00 a share. What is the

yield to maturity. Heuser believes it could issue new bonds at

at is Heuser's after-tax cost of debt? Round your answer to two