A corporation has 9,000 bonds outstanding with a 5% annual coupon rate, 7 years to maturity, a $1,000 face value, and a $1,200 market price. The company's 110,000 shares of preferred stock pay a $4 annual dividend, and sell for $40 per share. The company's 500,000 shares of common stock sell for $25 per share and have a beta of 1 The risk free rate is 5%, and the market return is 11%. Calculate cost of debt? Briefly show your steps. Calculate cost of preferred stock? Briefly show your steps. Calculate cost of equity? Briefly show your steps. what is company's pre-tax WACC? Briefly show your steps. What are the weight of debt, preferred stock and equity?Briefly show your steps.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
- A corporation has 9,000 bonds outstanding with a 5% annual coupon rate, 7 years to maturity, a $1,000 face value, and a $1,200 market price.
- The company's 110,000 shares of
preferred stock pay a $4 annual dividend, and sell for $40 per share. - The company's 500,000 shares of common stock sell for $25 per share and have a beta of 1 The risk free rate is 5%, and the market return is 11%.
Calculate cost of debt? Briefly show your steps.
Calculate cost of preferred stock? Briefly show your steps.
Calculate
what is company's pre-tax WACC? Briefly show your steps.
What are the weight of debt, preferred stock and equity?Briefly show your steps.
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