Beruflich Dokumente
Kultur Dokumente
N 30
PV $1,153.72
PMT $60
FV $1,000
rd 10.0%
rd (1 – T) 6.0%
PART C
(1) What is the firm’s cost of preferred stock?
rp 9.00%
PART D
(2) What is Coleman’s estimated cost of common equity using the CAPM approach?
β 1.2
rRF 7%
RPM 6% rs = rRF + (RPM)(b)
rS 14.20%
PART E
What is the estimated cost of common equity using the DCF approach?
Price $50
Current dividend $4.19
Constant growth rate 5%
rs = 14.00% rs = rd + RP
PART G
What is your final estimate for rs?
METHOD ESTIMATE
CAPM 14.20%
DCF 13.80%
rd + RP 14.00% Range: 13.80% to 14.20%
Average 14.00% Midpt: 14.00%
PART I
(2) Coleman estimates that if it issues new common stock, the flotation cost will be 15%. Coleman
incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued
common stock, considering the flotation cost?
PART J
What is Coleman’s overall, or weighted average, cost of capital (WACC)? Ignore flotation costs.