Bamboo Shack has the following capital structure: Assets: 450,000 Debt: 105,000 Preferred Stock: 25,000 Common Stock: 320,000 The common stock is currently selling for $20 a share, pays a cash dividend of $0.85 per share, and is growing annually at 9 percent. The preferred stock pays a $11 cash dividend and currently sells for $96 a share. The debt pays interest of 10.5 percent annually, and the firm is in the 40 percent marginal tax bracket. c. What is the cost of common stock? d. What is the firm’s weighted-average cost of capital?
Bamboo Shack has the following capital structure: Assets: 450,000 Debt: 105,000 Preferred Stock: 25,000 Common Stock: 320,000 The common stock is currently selling for $20 a share, pays a cash dividend of $0.85 per share, and is growing annually at 9 percent. The preferred stock pays a $11 cash dividend and currently sells for $96 a share. The debt pays interest of 10.5 percent annually, and the firm is in the 40 percent marginal tax bracket. c. What is the cost of common stock? d. What is the firm’s weighted-average cost of capital?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 8E
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Question
Bamboo Shack has the following capital structure:
|
Assets: 450,000 |
Debt: 105,000 |
|
|
|
|
|
Common Stock: 320,000 |
The common stock is currently selling for $20 a share, pays a cash dividend of $0.85 per share, and is growing annually at 9 percent. The preferred stock pays a $11 cash dividend and currently sells for $96 a share. The debt pays interest of 10.5 percent annually, and the firm is in the 40 percent marginal tax bracket.
c. What is the cost of common stock?
d. What is the firm’s weighted-average cost of capital?
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