One company has the following debt and equity: Common stock: 500,000 shares outstanding, selling for $30 per share; beta is 2.5. Debt: 10,000 bonds, selling for 105 percent of par. The bonds have a $1,000 par value each and the YTM is 8%. Preferred stock: 15,000 shares outstanding, selling for $250 per share. Annual dividend is $30 per share. The market risk premium is 4%, and the risk-free rate is 1.5%. tax rate is 21%. a) What are cost of equity, cost of debt, and cost of preferred stock? b) What is the capital structure weights of the company? (hint: the weight of each financing)

One company has the following debt and equity: Common stock: 500,000 shares outstanding, selling for $30 per share; beta is 2.5. Debt: 10,000 bonds, selling for 105 percent of par. The bonds have a $1,000 par value each and the YTM is 8%. Preferred stock: 15,000 shares outstanding, selling for $250 per share. Annual dividend is $30 per share. The market risk premium is 4%, and the risk-free rate is 1.5%. tax rate is 21%. a) What are cost of equity, cost of debt, and cost of preferred stock? b) What is the capital structure weights of the company? (hint: the weight of each financing)

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

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