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Zera Manufacturing is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data: Debt: The firm can raise debt by selling bond to the market with RM 1,000 par value 10% coupon interest rate, 10-year bonds on which annual interest payments will be made but is able to realize only RM 950 due to 5 % commission to the broker. Preferred stock: The fim can sell 11% (annual dividend) preferred stock at its RM 100 per share par value. The cost of issuing and selling the preferred stock its expected to be RM 4 per share. Common stock: The fim's common stock is currently selling for RM 80 per share. The firm expects to pay dividend of RM 6 per share next year. The firm 's dividends have been growing at an annual rate of 6%, and this rate is expected to continue in the future. The capital structure is as follows: Debt (40%), Preferred stock (15%) and Common stock (45%). Calculate the firm's weighted average cost of capital.

Zera Manufacturing is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data: Debt: The firm can raise debt by selling bond to the market with RM 1,000 par value 10% coupon interest rate, 10-year bonds on which annual interest payments will be made but is able to realize only RM 950 due to 5 % commission to the broker. Preferred stock: The fim can sell 11% (annual dividend) preferred stock at its RM 100 per share par value. The cost of issuing and selling the preferred stock its expected to be RM 4 per share. Common stock: The fim's common stock is currently selling for RM 80 per share. The firm expects to pay dividend of RM 6 per share next year. The firm 's dividends have been growing at an annual rate of 6%, and this rate is expected to continue in the future. The capital structure is as follows: Debt (40%), Preferred stock (15%) and Common stock (45%). Calculate the firm's weighted average cost of capital.

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
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Zera Manufacturing is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data: Debt: The firm can raise debt by selling bond to the market with RM 1,000 par value 10% coupon interest rate, 10-year bonds on which annual interest payments will be made but is able to realize only RM 950 due to 5 % commission to the broker. Preferred stock: The fim can sell 11% (annual dividend) preferred stock at its RM 100 per share par value. The cost of issuing and selling the preferred stock its expected to be RM 4 per share. Common stock: The fim's common stock is currently selling for RM 80 per share. The firm expects to pay dividend of RM 6 per share next year. The firm 's dividends have been growing at an annual rate of 6%, and this rate is expected to continue in the future. The capital structure is as follows: Debt (40%), Preferred stock (15%) and Common stock (45%). Calculate the firm's weighted average cost of capital.
Transcribed Image Text:Zera Manufacturing is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data: Debt: The firm can raise debt by selling bond to the market with RM 1,000 par value 10% coupon interest rate, 10-year bonds on which annual interest payments will be made but is able to realize only RM 950 due to 5 % commission to the broker. Preferred stock: The fim can sell 11% (annual dividend) preferred stock at its RM 100 per share par value. The cost of issuing and selling the preferred stock its expected to be RM 4 per share. Common stock: The fim's common stock is currently selling for RM 80 per share. The firm expects to pay dividend of RM 6 per share next year. The firm 's dividends have been growing at an annual rate of 6%, and this rate is expected to continue in the future. The capital structure is as follows: Debt (40%), Preferred stock (15%) and Common stock (45%). Calculate the firm's weighted average cost of capital.
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