Investment the firm plans. The firm's marginal tax rate is 30%. $500,000 Stock Common Stock $100,000 Preferred Bonds $400,000 Capital Value Source of Preferred stock paying a $1.80 dividend and selling for $25. To finance the new project, the company will sell: Market to make? (1 point) b. How should the flotation costs be incorporated into the analysis of the $1 million Estimate the total flotation costs the firm will incur to raise the needed $1 million. (2 points) costs, and the common stock issue will require flotation costs of 400 basis points. In the analysis done so far, we have not considered the effects of the flotation costs. 1. Estimate the discount rate that the firm needs to use to evaluate the project. (5 points) rate of 6% per year indefinitely. The common stock is selling at $40 per share. costs, the sale of preferred stock will require the firm to pay 200 basis points in flotation mix. New debt financing will require that the firm pays 100 basis points (i.e. 1%) in issue. Assume now that the company is raising a total of $1,000,000 using the above financing. The firm's common stock paid a $2.50 dividend last year and expects dividends to continue growing at a 10-year bonds with a $1,000 par value paying 7% per year paid semiannually at the market price of $980. business. You have determined the market value of the firm's target capital structure as follows: You have been asked to estimate the appropriate discount rate to use in the evaluation of a new line of
