The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9% coupon bonds(semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,440.03 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $12.00 per share. The preferred shares pay an annual dividend of $1.20. Imaginary also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5% per year forever. If Imaginary is subject to a 40% marginal tax rate, then what is the firm's weighted average cost of capital?
The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9% coupon bonds(semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,440.03 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $12.00 per share. The preferred shares pay an annual dividend of $1.20. Imaginary also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5% per year forever. If Imaginary is subject to a 40% marginal tax rate, then what is the firm's weighted average cost of capital?
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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| The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9% coupon bonds(semiannual coupon payments) | |||||
| which have a maturity of 15 years and are currently priced at $1,440.03 per bond. The firm also has an issue of 2 million |
|||||
| a market price of $12.00 per share. The preferred shares pay an annual dividend of $1.20. Imaginary also has 14 million shares of common stock outstanding with a | |||||
| price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5% per year forever. | |||||
| If Imaginary is subject to a 40% marginal tax rate, then what is the firm's weighted average cost of capital? |
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