XYZ Company holds 30% Debt, 30% Preferred stock, 40% Common stock. Interest rate on debt is 7.50%. Price of preferred stock is $90, and dividend on preferred stock is $6.00. Company just paid dividend of $2.50 on Common stock and price of Common stock is $30. Dividend on common stock grows at 5%. Company pays tax at 40%. Calculate the WACC of XYZ Company.

XYZ Company holds 30% Debt, 30% Preferred stock, 40% Common stock. Interest rate on debt is 7.50%. Price of preferred stock is $90, and dividend on preferred stock is $6.00. Company just paid dividend of $2.50 on Common stock and price of Common stock is $30. Dividend on common stock grows at 5%. Company pays tax at 40%. Calculate the WACC of XYZ Company.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 4FPE: The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million...

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The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company’s stock currently trades at $60 per share. Compute the stock’s earnings per share (EPS). What is the stock’s P/E ratio? Determine what the stock’s dividend yield would be if it paid $1.75 per share to common stockholders.
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