The allied group intends to expand the company’s operation by making significant investments in several opportunities available to the group. Accordingly, the group has identified a need additional financing in preferred a new common stock a new bond issues. The (KRF) risk- free rate for the company is 7% and the appropriate tax rate is 40%. Also, the beta coefficient for the company is 3% and the market risk premium (km) is 12%.
New Debt (Kd).
The company has been advised that new bonds can be sold on the market at par ($1000) with the annual coupon of 8% for 30 years.
New Common Stock.
Market analysis has determined that given the positive history of the firm, new common stock can be sold at $29 per share. The growth rate on any new delete the words highlighted in yellow common stock has been estimated at the constant rate of 15% per year for the next 3 years.
New preferred stock can be issued with annual dividend of 10% of par and is paid annually and currently would sell for 90% per share.
Address all of the following questions in a brief but through manner.
– Using the capital asset pricing model (CAPM), discuss and calculate the cost of new common stock (ks).
– What would the dividend payment divided by the book value of a share stock) today and a year from now if the dividend growth rate is 12%?.
– What is the after-tax cost as a percentage (e.g., interest rate) of new debt today?.
– What are recommendations for raising capital based on your answers to the above questions plus considering other factors (e.g., current and potential changes in the economy locally, regionally, nationally and worldwide, changes in the demand and/or supply plus cost of materials, skilled labor, management and /or leadership, change in interest, tax, inflation and/or supply of investment capital?.
– Identified the cost of new common stock.
– Calculated the dividend field in each of next three year correctly.
– Calculated the dividend field (i.e percentage) correctly.
– Identified the correct after tax cost as a percentage (e.g. interest rate) of new debt.
– Word was clearly written, with logical flow, with minimal errors (including APA format) and utilized appropriate citation/reference of sources.