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. %

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter13: Capital Structure And Leverage
Section: Chapter Questions
Problem 11P: RECAPITALIZATION Currently, Forever flowers Inc. has a capital structure consisting of 25% debt and...
icon
Related questions
Question
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.
%
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. %
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Fundamentals Of Financial Management, Concise Edi…
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781305635937
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781285065137
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
EBK CFIN
EBK CFIN
Finance
ISBN:
9781337671743
Author:
BESLEY
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781285867977
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning