Sound Systems has 200 shares of common stock outstanding at a market price of $37 a share. The firm just paid an annual dividend in the amount of $1.20 per share. Dividends are expected to increase at 4 percent annually. The firm also has five Serial A bonds outstanding each with a face value of $1,000 and all selling at the same price that equals to 99 percent of face value. The bonds have the same coupon rate of 6 percent and the same yield to maturity of 6.7 percent. All interest is tax deductible. If the tax rate is 20 percent, what is the weighted average cost of capital? 6.57% 6.87% 6.51% 5.93% 7.12%

Sound Systems has 200 shares of common stock outstanding at a market price of $37 a share. The firm just paid an annual dividend in the amount of $1.20 per share. Dividends are expected to increase at 4 percent annually. The firm also has five Serial A bonds outstanding each with a face value of $1,000 and all selling at the same price that equals to 99 percent of face value. The bonds have the same coupon rate of 6 percent and the same yield to maturity of 6.7 percent. All interest is tax deductible. If the tax rate is 20 percent, what is the weighted average cost of capital? 6.57% 6.87% 6.51% 5.93% 7.12%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 17P

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