Strawberry Corporation has 3 million ordinary shares outstanding that are currently priced at $8.50 each and have a beta of 1.4. The company has 500,000 preference shares trading at $6 each. Eight years ago the company issued bonds with a total face value of $5 million. One bond has a face value of $250,000. The bonds have a coupon rate of 4% p.a. and coupons are paid annually. The bonds mature in six years from today. The bonds currently yield 3.5% p.a., the return on the stock market is 8% p.a., the risk-free return is 2.5% p.a., and the company tax rate is 30%. What proportion of the firm's capital structure is ordinary equity?
Strawberry Corporation has 3 million ordinary shares outstanding that are currently priced at $8.50 each and have a beta of 1.4. The company has 500,000
What proportion of the firm's capital structure is ordinary equity?
Ordinary shares outstanding = 3 million
Ordinary share price = $8.50
Preference shares outstanding = 500000
Preference shares outstanding = $6
Bond face value (F) = $250000
Coupon (C) = 4% of F = $10000
YTM = r = 3.5%
n = 6 years
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