XYZ Company has an existing capital structure mix of Debt 35%, preferred stock 15% and Common Stock 50%. a) Calculate Cost of Debt, if the cost of debt is 6% (effective rate) and its tax rate is 40% then what is the after-tax cost of debt? b) Calculate the Cost of preferred stock, if the market price for preferred stock is $100 per share, with a stated dividend of $10. c) Calculate Cost of Equity if Beta  is 1.5 and the risk-free rate on a treasury bill is currently 5% and the market return has averaged 10%.

XYZ Company has an existing capital structure mix of Debt 35%, preferred stock 15% and Common Stock 50%. a) Calculate Cost of Debt, if the cost of debt is 6% (effective rate) and its tax rate is 40% then what is the after-tax cost of debt? b) Calculate the Cost of preferred stock, if the market price for preferred stock is $100 per share, with a stated dividend of $10. c) Calculate Cost of Equity if Beta  is 1.5 and the risk-free rate on a treasury bill is currently 5% and the market return has averaged 10%.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 15PROB

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