Consider Huggins 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.   Required: Calculate the following if the company has a tax rate of 36 percent.   1. Total Market Value for the Firm   2. After-tax cost of Debt   3. Cost of Equity

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
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Consider Huggins 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.

 

Required: Calculate the following if the company has a tax rate of 36 percent.

 

1. Total Market Value for the Firm

 

2. After-tax cost of Debt

 

3. Cost of Equity

 

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