# Bosio Inc.’s perpetual preferred stock sells for \$97.50 per share, and it pays an \$8.50 annual dividend

Bosio Inc.’s perpetual preferred stock sells for \$97.50 per share, and it pays an \$8.50 annual dividend

1.      Bosio Inc.’s perpetual preferred stock sells for \$97.50 per share, and it pays an \$8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company’s cost of preferred stock for use in calculating the WACC?

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2.      Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%; its tax rate is 40%; the next expected dividend is \$0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price of the stock is \$15.00 per share; the flotation cost for selling new shares is F = 10%; and the target capital structure is 45% debt and 55% common equity. What is the firm’s WACC, assuming it must issue new stock to finance its capital budget?

 3. For a typical firm, which of the following sequences is CORRECT? All rates are after taxes, and assume that the firm operates at its target capital structure.

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