Question
A Company has 7.3 million shares of common stock outstanding, 220,000 shares of preferred shares outstanding, and 120,000 6.5% semiannual bonds outstanding, par value $1,000
A Company has 7.3 million shares of common stock outstanding, 220,000 shares of preferred shares outstanding, and 120,000 6.5% semiannual bonds outstanding, par value $1,000 each. The common stock sells for $46 per share and has a beta of 0.95, the preferred stock sells for $91 per share and has a $4.50 dividend, and the bonds have 15 years to maturity and sell for 107% of par. The market risk premium is 7%, T-bill is yielding 3.6%, and the company's tax rate is 35%.
1. What is the cost of debt? A2.78% B2.9% C5.56% D5.8%
2. What is the capital structure?
a19% Bonds, 62% Common Stock, 19% Preferred Stock
b27% Bonds, 69% Common Stock, 4% Preferred Stock
c31% Bonds, 57% Common Stock, 12% Preferred Stock
d35% Bonds, 60% Common Stock, 5% Preferred Stock
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