Higgins Production has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual paymentsCommon Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per shareMarket Information - 6 percent market risk premium and 4 percent risk-free rate.Calculate the following if the company has a tax rate of 36 percent:Cost of Preferred Stock and Weighted Average Cost of Capital

Answered: Higgins Production has the following…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

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Higgins Production has the following information about its capital structures:

Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments

Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80
Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share
Market Information - 6 percent market risk premium and 4 percent risk-free rate.

Calculate the following if the company has a tax rate of 36 percent:

Cost of Preferred Stock and Weighted Average Cost of Capital

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