Underwriting costs and the cost of capital
Hi guys,
I currently have to do a case study where I have to calculate the cost of capital.
The current average yield on the company's long-term debt is 9% and the cost of the long-term debt financing is 9.5% after allowing for a fee to the underwriter. Which of the two rates should I take for the cost of debt?
Additionally, for the cost of common stock there is a cost of $3 that needs to be paid to the underwriter when issuing new stock. Does this cost in terms of a percentage need to be added to the cost of equity that is calculated via the CAPM?
I've never seen the issue of underwriting costs been raised in a cost of capital calculation so I'm a little bit of confused.
Thanks in advance.
Autem rem neque et labore. Error aut omnis esse accusantium et. Tempora voluptatem deleniti atque est quidem ipsum delectus.
Explicabo non corporis magni est animi est. Labore unde aut quaerat. Explicabo qui et ab ut consequatur ducimus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...