Question
1) Star Boutique's current share price is $20 and it is expected to pay a $1 dividend per share next year. After that, the firm's
1) Star Boutique's current share price is $20 and it is expected to pay a $1 dividend per share next year. After that, the firm's dividends are expected to grow at a constant rate of 4% per year. What is the company's cost of capital?
2) Star Boutique also has preferred stock outstanding that pays a $2 per share fixed dividend and the preferred stock is currently priced at $28, What is the company's preferred stock?
3) Star Boutique has 5 million common shares outstanding and 1 million preferred shares outstanding, and its equity has a total book value of $50 million. Its liabilities have a market value of $20 million. If the Company's common and preferred shares are priced as in question 1 and 2, what is the market value of their total assets? What are the weights of common stock, preferred stock and debt respectively?
4) Star Boutique faces a 40% tax rate and 6% pretax cost of debt. Given the information in questions 1 to 3 and your answers to those problems, what is the Company's WACC?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started