ADL has 4 million ordinary shares outstanding that are currently priced at $7.50 each and have a beta of 1.4. Four years ago, the company issued bonds with a total face value of $11 million. One bond has a face value of $250,000. The bonds have a coupon rate of 5% p.a., and coupons are paid semi-annually. The bonds mature eleven years from today. The bonds currently yield 6% p.a. The company has 650,000 preference shares trading at $8 each. The return on the stock market is 9% p.a., the risk-free return is 4% p.a., and the company tax rate is 30%. The market yield on the ADL preference shares is 8%. What proportion of the firm's capital structure is preference shares?

ADL has 4 million ordinary shares outstanding that are currently priced at $7.50 each and have a beta of 1.4. Four years ago, the company issued bonds with a total face value of $11 million. One bond has a face value of $250,000. The bonds have a coupon rate of 5% p.a., and coupons are paid semi-annually. The bonds mature eleven years from today. The bonds currently yield 6% p.a. The company has 650,000 preference shares trading at $8 each. The return on the stock market is 9% p.a., the risk-free return is 4% p.a., and the company tax rate is 30%. The market yield on the ADL preference shares is 8%. What proportion of the firm's capital structure is preference shares?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 14P

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