Here is the condensed 201

Here is the condensed 201

Here is the condensed 2012 balance sheet for Skye Computer Company (in thousands of dollars):Skye’s earnings per share last year were $3.20. The common stock sells for $55.00, last year?s dividend D0) was $2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skye’s preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share. The firm can issue long-term debt at an interest rate (or before-tax cost) of 10%, and its marginal tax rate is 35%. The firm’s currently outstanding 10% annual coupon rate long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skye’s beta is 1.516. In its cost of capital calculations, the company considers only long-term capital; hence, it disregards current liabilities for calculating its WACC.A-T Cost of Debt = r= YTM (1 ? T)Cost of Preferred = (D/ P)Cost of Retained earnings = r= (D/ P) + gCost of New Equity = r= (D) / [P(1 ? f)] + gF = Flotation CostCost of Retained earnings as per CAPM = r= r+ (r? r) bCost of New Equity as per CAPM = r= r(from b above) + r- r(from a above)

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