Banana Corporation has 4 million ordinary shares outstanding that are currently priced at $8.50 each and have a beta of 1.4. The company has 750,000 preference shares trading at $6 each. Eight years ago the company issued bonds with a total face value of $5 million. One bond has a face value of $250,000. The bonds have a coupon rate of 4% p.a. and coupons are paid annually. The bonds mature in six years from today. The bonds currently yield 2.5% p.a., the return on the stock market is 8% p.a., the risk-free return is 2.5% p.a., and the company tax rate is 30%. What proportion of the firm's capital structure is preference shares?
Banana Corporation has 4 million ordinary shares outstanding that are currently priced at $8.50 each and have a beta of 1.4. The company has 750,000 preference shares trading at $6 each. Eight years ago the company issued bonds with a total face value of $5 million. One bond has a face value of $250,000. The bonds have a coupon rate of 4% p.a. and coupons are paid annually. The bonds mature in six years from today. The bonds currently yield 2.5% p.a., the return on the stock market is 8% p.a., the risk-free return is 2.5% p.a., and the company tax rate is 30%. What proportion of the firm's capital structure is preference shares?
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
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Banana Corporation has 4 million ordinary shares outstanding that are currently priced at $8.50 each and have a beta of 1.4. The company has 750,000
What proportion of the firm's capital structure is preference shares?
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