Problem 21-01 HBM, Inc has the following capital structure: Assets $450,000 Debt Preferred stock Common stock $180,000 22,500 247,500 The common stock is currently selling for $15 a share, pays a cash dividend of $0.85 per share, and is growing annually at 4 percent. The preferred stock pays a $5 cash dividend and currently sells for $92 a share. The debt pays interest of 8.5 percent annually, and the firm is in the 30 percent marginal tax bracket. a. What is the after-tax cost of debt? Round your answer to two decimal places. % b. What is the cost of preferred stock? Round your answer to two decimal places. % c. What is the cost of common stock? Assume that the current $0.85 dividend grows by 4 percent during the year. Round your answer to two decimal places. % d. What is the firm's weighted-average cost of capital? Round your answer to two decimal places. %
Problem 21-01 HBM, Inc has the following capital structure: Assets $450,000 Debt Preferred stock Common stock $180,000 22,500 247,500 The common stock is currently selling for $15 a share, pays a cash dividend of $0.85 per share, and is growing annually at 4 percent. The preferred stock pays a $5 cash dividend and currently sells for $92 a share. The debt pays interest of 8.5 percent annually, and the firm is in the 30 percent marginal tax bracket. a. What is the after-tax cost of debt? Round your answer to two decimal places. % b. What is the cost of preferred stock? Round your answer to two decimal places. % c. What is the cost of common stock? Assume that the current $0.85 dividend grows by 4 percent during the year. Round your answer to two decimal places. % d. What is the firm's weighted-average cost of capital? Round your answer to two decimal places. %
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
Problem 1PS
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Transcribed Image Text:Problem 21-01
HBM, Inc has the following capital structure:
Assets $450,000
Debt
Preferred stock
Common stock
$180,000
22,500
247,500
The common stock is currently selling for $15 a share, pays a cash dividend of $0.85 per share, and is growing annually at 4 percent. The preferred stock pays a $5 cash dividend
and currently sells for $92 a share. The debt pays interest of 8.5 percent annually, and the firm is in the 30 percent marginal tax bracket.
a. What is the after-tax cost of debt? Round your answer to two decimal places.
%
b. What is the cost of preferred stock? Round your answer to two decimal places.
%
c. What is the cost of common stock? Assume that the current $0.85 dividend grows by 4 percent during the year. Round your answer to two decimal places.
%
d. What is the firm's weighted-average cost of capital? Round your answer to two decimal places.
%
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