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Essentials Of Investments
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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Mike Corporation has the following capital structure: Component Percentage (%) Bonds 25 Preferred stocks 15 Common stocks 60 The additional information of the corporation are as follows: • After-tax cost of debt is 7.013% • The market price of a preferred stock is RM35 and the dividend on preferred stock is at RM1.50 per stock. Preferred stock flotation cost is RM1.80. • The market price of a common stock is RM21. The dividends on common stock are currently paid RM0.80 per stock and are expected to grow at a constant rate of 5%. Based on the information above, calculate: (i) Cost of preferred stock (ii) Cost of common stock (iii) Weighted Average Cost of Capital (WACC) of the corporation
Transcribed Image Text:Mike Corporation has the following capital structure: Component Percentage (%) Bonds 25 Preferred stocks 15 Common stocks 60 The additional information of the corporation are as follows: • After-tax cost of debt is 7.013% • The market price of a preferred stock is RM35 and the dividend on preferred stock is at RM1.50 per stock. Preferred stock flotation cost is RM1.80. • The market price of a common stock is RM21. The dividends on common stock are currently paid RM0.80 per stock and are expected to grow at a constant rate of 5%. Based on the information above, calculate: (i) Cost of preferred stock (ii) Cost of common stock (iii) Weighted Average Cost of Capital (WACC) of the corporation
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