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
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
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
Problem 1PS
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QUESTION 3
CER Corporation has 8.75 million shares of common stock outstanding, 215,000 shares
of RM6 annual dividend
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)
(c) Cost of preferred stock
Thank you
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