financeThe weighted average cost of capital as well as the costs associated with each unique type of capital are of importance to Nova Corporation. In the past, the company has raised money in the following ways:
$$
\begin{array}{ll}
\text { Source of capital } & \text { Weight } \\
\hline \text { Long-term debt } & 35 \% \\
\text { Preferred stock } & 12 \\
\text { Common stock equity } & 53
\end{array}
$$
The company currently has a 40% tax rate. The following financial data and information is required:
Debt: By offering 10-year, $1,000 par value bonds with a 6.5% coupon interest rate and annual interest payments, Nova is able to raise debt. An average discount of$20 per bond must be offered in order to sell the issuance. There is a 2% of par cost connected with flotation.
Preferred stock: The following conditions can apply to the sale of preferred stock: The security has a $100 par value per share, an annual dividend yield of 6%, and an anticipated flotation cost of$4 per share. Prior to cost factors, the preferred stock is anticipated to sell for $102 a share.
Common stock: Nova's common stock currently costs$35 per share.
The anticipated cash dividend for the following year is $3.25 per share. The company's dividends have increased at a 5% yearly pace, and it is anticipated that this rate will hold true for the foreseeable future. The average share-level flotation expenses are anticipated to be$2. Under these terms, Nova may sell fresh shares of common stock.
Retained earnings: The company expects to have $100,000 in retained earnings available. income for the upcoming year. When all of these retained earnings have been used, the company will finance common stock equity using newly issued common stock. (Note: The company disregards taxes when calculating this cost. owners' price range or brokerage costs). Create a spreadsheet to calculate the firm’s weighted average cost of capital using new common stock and the capital structure weights shown in the table above. 6th Edition•ISBN: 9780357041178Spencer A. Rathus380 solutions
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