Question
A company has preferred stock outstanding. Each share has a par value of $50, and there is a fixed dividend rate of 8.5% on this
A company has preferred stock outstanding. Each share has a par value of $50, and there is a fixed dividend rate of 8.5% on this stock. Each share of this preferred is currently selling for $55.90.
The company has 7.10% coupon bonds outstanding with a remaining maturity of 15 years. The bonds pay interest semiannually and are currently selling for $1129 per $1000 of face value. The company faces a marginal tax rate of 30%.
The company has just paid out a per-share dividend of $2.95 on its common stock. Analysts expect the companys earnings and dividends per share to grow at a constant rate of 3.15% for the foreseeable future. Each share of this common stock is currently trading for $61.
The company plans to raise any additional funding using the following mix of financing sources: 40% debt; 10% preferred equity; and the remainder common equity. Based on all the information provided, estimate the companys weighted average cost of capital (WACC).
4.99%
4.84%
8.14%
7.99%
2.98%
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