Consider Higgins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. i. Cost of Preferred Stock ii. Weighted Average Cost of Capital
Consider Higgins Production which has the following information about its capital structures: Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for 80 percent of par, the bonds make semi-annual payments Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80 Preferred Stock - 25,000 shares of 6 percent preferred stock outstanding, currently selling for $150 per share Market Information - 6 percent market risk premium and 4 percent risk-free rate. i. Cost of Preferred Stock ii. Weighted Average Cost of Capital
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 17P
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Question
Consider Higgins Production which has the following information about its capital structures:
Debt - 1,500, 5 percent coupon bonds outstanding, $1,000 par value, 7 years to maturity, selling for
80 percent of par, the bonds make semi-annual payments
Common Stock - 100,000 shares outstanding, selling for $45 per share; the beta is 0.80
for $150 per share
Market Information - 6 percent market risk premium and 4 percent risk-free rate.
i. Cost of Preferred Stock
ii. Weighted Average Cost of Capital
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