Assignment 2

Subject: Introduction to Finance

Class: BS (A&F) 3-A
Due Date: 29th November,2021
Marks: 20

Note: Give explanation of the following questions.

Q1: A steel company plans to issue some $100 par preferred stock with an 11 percent dividend.
The stock is selling on the market for $97.00, and the company must pay flotation costs of 5 percent
of the market price. What is the cost of the preferred stock for the company?
Q2: The Masters’ Company’s next expected dividend, D^ 1, is $3.18; its growth rate is 6 percent;
and its stock currently sells for $36. New stock can be sold to net the firm $32.40 per share.
a. What is Masters’ percentage flotation cost, F?
b. What is Masters’ cost of new common stock, re?
Q3: Following is information about the common equity of Liana’s Leather Company:

a. What is Liana’s cost of retained earnings?

b. What is Liana’s cost of new common stock.
Q4. The cost of varous tyoes of capital of XYZ’s Co ltd is given below along with target market
proportions. Compute WACC from the following.