One company has the following debt and equity: Common stock: 500,000 shares outstanding, selling for $30 per share; beta is 2.5. Debt: 10,000 bonds, selling for 105 percent of par. The bonds have a $1,000 par value each and the YTM is 8%. Preferred stock: 15,000 shares outstanding, selling for $250 per share. Annual dividend is $30 per share. The market risk premium is 4%, and the risk-free rate is 1.5%. tax rate is 21%. a) What are cost of equity, cost of debt, and cost of preferred stock? b) What is the capital structure weights of the company? (hint: the weight of each financing)
One company has the following debt and equity: Common stock: 500,000 shares outstanding, selling for $30 per share; beta is 2.5. Debt: 10,000 bonds, selling for 105 percent of par. The bonds have a $1,000 par value each and the YTM is 8%. Preferred stock: 15,000 shares outstanding, selling for $250 per share. Annual dividend is $30 per share. The market risk premium is 4%, and the risk-free rate is 1.5%. tax rate is 21%. a) What are cost of equity, cost of debt, and cost of preferred stock? b) What is the capital structure weights of the company? (hint: the weight of each financing)
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 9PROB
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Transcribed Image Text:Question 8
One company has the following debt and equity:
Common stock: 500,000 shares outstanding, selling for $30 per share; beta is 2.5.
Debt: 10,000 bonds, selling for 105 percent of par. The bonds have a $1,000 par value each and
the YTM is 8%.
Preferred stock: 15,000 shares outstanding, selling for $250 per share. Annual dividend is $30
per share.
The market risk premium is 4%, and the risk-free rate is 1.5%. tax rate is 21%.
a) What are cost of equity, cost of debt, and cost of preferred stock?
b) What is the capital structure weights of the company? (hint: the weight of each financing)
c) What is the cost of capital of the company?
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