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Compute the weighted average cost of capital RIC Inc. using the following
information:
RIC Inc. has decided to finance this product line expansion by raising new capital. The company’s optimal capital structure calls for 35% debt, 40% equity, and 25% preferred stock. RIC Inc. can issue a series of 8% coupon bonds with a $ 1000 par value. The bonds will mature in 10 years and will sell for $ 946 minus an issuance cost of $ 5. RIC Inc.’s marginal tax rate is 35 %.
RIC Inc’s common stock is currently selling for $ 22 per share. Its present dividend is $ 1.96 a share and the expected long -term dividend growth rate is 8.5% . What is the cost of external equity for RIC Inc. assuming an issuance cost of $ 2.00 per share ?
RIC Inc. has just issued shares of preferred stock that pay an annual dividend of $ 2.15. The preferred stock was sold to the public at a price of $ 52.00 per share with issuance cost of $ 2.00 per share. What is the marginal cost of preferred stock for RIC Inc.?
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