The Ivanhoe Products Co. currently has debt with a market value of $250 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) that have a maturity of 15 years and are currently priced at $1423.92 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $15.00 per share. The preferred shares pay an annual dividend of $1.20. Ivanhoe 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 4 percent per year forever. If Ivanhoe is subject to a 28 percent marginal tax rate.
The Ivanhoe Products Co. currently has debt with a market value of $250 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) that have a maturity of 15 years and are currently priced at $1423.92 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $15.00 per share. The preferred shares pay an annual dividend of $1.20. Ivanhoe 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 4 percent per year forever. If Ivanhoe is subject to a 28 percent marginal tax rate.
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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Please help me calculate the cost of debt
Transcribed Image Text:**Debt Structure and Equity Overview of Ivanhoe Products Co.**
Ivanhoe Products Co. has a debt portfolio with a market value of $250 million. The debt comprises 9 percent coupon bonds with semiannual coupon payments. These bonds mature in 15 years and have a current price of $1,423.92 per bond.
The company also issues 2 million preferred shares, priced at $15.00 per share on the market. These shares provide an annual dividend of $1.20.
In addition, Ivanhoe has 14 million shares of common stock, with each share valued at $20.00. The firm plans to distribute a common dividend of $2.20 in one year. This dividend is forecasted to grow by 4 percent annually indefinitely.
It is noteworthy that Ivanhoe is governed by a 28 percent marginal tax rate.
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