CER Corporation has 8.75 million shares of common stock outstanding, 215,000 shares of RM6 annual dividend preferred stock outstanding, and 105,000 of 7.5% semi-annual bond outstanding. The common stock is currently sells for RM34 per share and has a beta of 1.25, the preferred stock currently sells for RM91 per share, and the bonds have 15 years to maturity and sell for 93% of par. The market risk premium is 8.5%, T-bills are yielding 5%, and corporate tax rate is 35%. Calculate the following: (a) Firm’s market value capital structure. (b) Cost of equity. (c) Cost of preferred stock

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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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QUESTION 3 
CER Corporation has 8.75 million shares of common stock outstanding, 215,000 shares
of RM6 annual dividend preferred stock outstanding, and 105,000 of 7.5% semi-annual
bond outstanding. The common stock is currently sells for RM34 per share and has a
beta of 1.25, the preferred stock currently sells for RM91 per share, and the bonds have
15 years to maturity and sell for 93% of par. The market risk premium is 8.5%, T-bills are
yielding 5%, and corporate tax rate is 35%.

Calculate the following:
(a) Firm’s market value capital structure.

(b) Cost of equity.

(c) Cost of preferred stock

Thank you

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