HBM, Inc has the following capital structure: Assets $550,000 Debt Preferred stock Common stock $137,500 82,500 330,000 The common stock is currently selling for $14 a share, pays a cash dividend of $0.70 per share, and is growing annually at 7 percent. The preferred stock pays a $6 cash dividend and currently sells for $86 a share. The debt pays interest of 8.0 percent annually, and the firm is in the 30 percent marginal tax bracket. a. What is the after-tax cost of debt? Round your answer to two decimal places. b. What is the cost of preferred stock? Round your answer to two decimal places. % c. What is the cost of common stock? Assume that the current $0.70 dividend grows by 7 percent during the year. Round your answer to two decimal places. % d. What is the firm's weighted-average cost of capital? Round your answer to two decimal places.
HBM, Inc has the following capital structure: Assets $550,000 Debt Preferred stock Common stock $137,500 82,500 330,000 The common stock is currently selling for $14 a share, pays a cash dividend of $0.70 per share, and is growing annually at 7 percent. The preferred stock pays a $6 cash dividend and currently sells for $86 a share. The debt pays interest of 8.0 percent annually, and the firm is in the 30 percent marginal tax bracket. a. What is the after-tax cost of debt? Round your answer to two decimal places. b. What is the cost of preferred stock? Round your answer to two decimal places. % c. What is the cost of common stock? Assume that the current $0.70 dividend grows by 7 percent during the year. Round your answer to two decimal places. % d. What is the firm's weighted-average cost of capital? Round your answer to two decimal places.
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 17P
Related questions
Question
Answer and solution please
Transcribed Image Text:HBM, Inc has the following capital structure:
Assets $550,000
a. What is the after-tax cost of debt? Round your answer to two decimal places.
%
The common stock is currently selling for $14 a share, pays a cash dividend of $0.70 per share, and is growing annually at 7 percent. The preferred stock pays a $6 cash dividend and currently sells for $86 a share. The debt pays
interest of 8.0 percent annually, and the firm is in the 30 percent marginal tax bracket.
b. What is the cost of preferred stock? Round your answer to two decimal places.
%
Debt
Preferred stock
Common stock
$137,500
82,500
330,000
d. What is the firm's weighted-average cost of capital? Round your answer to two decimal places.
%
c. What is the cost of common stock? Assume that the current $0.70 dividend grows by 7 percent during the year. Round your answer to two decimal places.
%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Financial Accounting
Accounting
ISBN:
9781337272124
Author:
Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:
Cengage Learning