Calculate the weights of capital components based on the book value balance sheet.
| weight of debt: Wd | ||
| weight of |
||
| weight of total common equity: We |
| Here is the condensed 2015 balance sheet for Skye Computer Company (in thousands of dollars): | |||
| CONDENSED BALANCE SHEET FOR SKYE COMPUTER COMPANY | |||
| FY2015 | |||
| Current assets | $2,000 | ||
| Net fixed assets | 3,000 | ||
| Total assets | $5,000 | ||
| Total debt | $2,100 | ||
| Preferred stock | 250 | ||
| Common stock | 1,300 | ||
| |
1,350 | ||
| Total common equity | $2,650 | ||
| Total liabilities & equity | $5,000 | ||
The firm's marginal tax rate is 35%. The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually.
Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share.
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 (i.e, f ) 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%.
The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516.
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