Harris International currently pays a dividend of $3.24 per share on its preferred stock that sells for $54 per share. In order to raise capital to purchase a smaller competitor, the company plans to issue 2.7 million shares of preferred stock at a 10% discount to its current price. Determine (a) the amount of funding that Harris will realize through the stock offering, and (b) the cost of equity financing.
What will be an ideal response?
(a) Money raised = 2,700,000(54)(0.90)
= $131,220,000
(b) Cost of Equity financing = 3.24/(54)(0.9)
= 0.0666 (6.67%)
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