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)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter7: Analysis Of Financial Statements
Section: Chapter Questions
Problem 3P: Winston Watch’s stock price is $75 per share. Winston has $10 billion in total assets. Its balance...
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![Question 8
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)
c) What is the cost of capital of the company?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8c57b281-1119-4b64-88a1-1c731027b6ac%2F122a3cf9-77a7-4b97-b626-9715eb35cec0%2Fvqidpc_processed.png&w=3840&q=75)
Transcribed Image Text:Question 8
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)
c) What is the cost of capital of the company?
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