Question
#6 Suppose Westerfield Co. has the following financial information: Debt: 300,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 97.5%
#6
Suppose Westerfield Co. has the following financial information:
Debt: 300,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 97.5% of par and have 15 years to maturity. The coupon rate equals 5%, and the bonds make semiannual interest payments.
Preferred stock: 550,000 shares of preferred stock outstanding; currently trading for $78 per share, and it pays a dividend of $5 per share every year.
Common stock: 10,000,000 shares of common stock outstanding; currently trading for $65 per share. Beta equals 1.29.
Market and firm information: The expected return on the market is 9%, the risk-free rate is 3%, and the tax rate is 21%.
Calculate the cost of common stock. (Enter percentages as decimals and round to 4 decimals)
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