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A 30-year, $1000 par value bond with a 4% annual coupon bond sells for $900. Preferred stock pays $9.5 in dividends per year and has a selling price of $105. The risk-free rate (30 day t-bills) is 3%, the market risk premium is 6%, the stock's beta is 1.2, dividends are growing at 4% per year, the stock will pay $4 in dividends next year, the current stock price is $50, and the bond- equity risk premium is 6%. Assume a corporate tax rate of 20% and target weights of 40% debt, 20% preferred, 40% common equity. Calculate the weighted averae cost of capital for the firm 8.96% 6.86% 7.66% 10.56% 9.66%

A 30-year, $1000 par value bond with a 4% annual coupon bond sells for $900. Preferred stock pays $9.5 in dividends per year and has a selling price of $105. The risk-free rate (30 day t-bills) is 3%, the market risk premium is 6%, the stock's beta is 1.2, dividends are growing at 4% per year, the stock will pay $4 in dividends next year, the current stock price is $50, and the bond- equity risk premium is 6%. Assume a corporate tax rate of 20% and target weights of 40% debt, 20% preferred, 40% common equity. Calculate the weighted averae cost of capital for the firm 8.96% 6.86% 7.66% 10.56% 9.66%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A 30-year, $1000 par value bond with a 4% annual coupon bond sells for $900. Preferred stock pays $9.5 in dividends per year and has a selling price of $105. The risk-free rate (30 day t-bills) is 3%, the market risk premium is 6%, the stock's beta is 1.2, dividends are growing at 4% per year, the stock will pay $4 in dividends next year, the current stock price is $50, and the bond- equity risk premium is 6%. Assume a corporate tax rate of 20% and target weights of 40% debt, 20% preferred, 40% common equity. Calculate the weighted averae cost of capital for the firm 8.96% 6.86% 7.66% 10.56% 9.66%
Transcribed Image Text:A 30-year, $1000 par value bond with a 4% annual coupon bond sells for $900. Preferred stock pays $9.5 in dividends per year and has a selling price of $105. The risk-free rate (30 day t-bills) is 3%, the market risk premium is 6%, the stock's beta is 1.2, dividends are growing at 4% per year, the stock will pay $4 in dividends next year, the current stock price is $50, and the bond- equity risk premium is 6%. Assume a corporate tax rate of 20% and target weights of 40% debt, 20% preferred, 40% common equity. Calculate the weighted averae cost of capital for the firm 8.96% 6.86% 7.66% 10.56% 9.66%
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