Organic produce Corporation has nine million shares of common stock outstanding, 500,000 shares of 6 percent preferred

Question:

Organic produce Corporation has nine million shares of common stock outstanding, 500,000 shares of 6 percent preferred stock outstanding, and 200,000 of 9.4 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $64 per share and has a beta of 1.1, the preferred stock currently sells for $83 per share, and the bonds have 15 years to maturity and sell for 108 percent of par. The market risk premium is 8 percent, T-bills are yielding 5.5 percent, and the firm’s tax rate is 34 percent.

(a) What is the firms’ market value capital structure?

(b) If the firm is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...