Compute: 1. The minimum required return by Cts Ltd's debtholders 2. The minimum required return by Cts Ltd's common shareholders 3. The minimum required return by Cts Ltd's preferred shareholders
Cts Ltd. is in the 30% tax bracket. It is interested in determining the minimum
return that its stakeholders (investors) will accept. Since you have applied for an internship
with them, they have assigned this task to you.
To get started with your work, you compile some information as follows:
1. Cts Ltd has 3000, 6% semi-annual coupon bonds outstanding. These bonds will
mature in 12 years and they sell for 80% of their par value as of now.
2. The firm is also partly equity financed. It has 100,000 outstanding common shares and
19,000 shares of preferred stock. The common shares command a market price of $55
per share and the beta of Cts Ltd stock is 1.20.
dividend and sell for $110 per share.
3. The risk-free rate is 4% and the market risk premium is 6%
Compute:
1. The minimum required return by Cts Ltd's debtholders
2. The minimum required return by Cts Ltd's common shareholders
3. The minimum required return by Cts Ltd's preferred shareholders
4. The overall minimum required return for Cts Ltd's stakeholders
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