Question
A company has the following capital structure. 500,000 shares of common stocks outstanding, trading at P cs,0 = $10 per share. The company's period 0
A company has the following capital structure. 500,000 shares of common stocks outstanding, trading at Pcs,0 = $10 per share. The company's period 0 common stock dividend per share is 0.25 dollars and is expected to grow by 3% per year. 200,000 shares of preferred stocks trading at Pcs,0 = $5 per share, which pays a 0.5-dollar dividend per share. The company also sold a 20-year non-amortized corporate bond worth 10 million at par in period 0, with a yield to maturity (YTM) of 5%. The corporation faces a tax rate of =25%.
1.What's the rate of return expected by the preferred shareholders?
2.According to the Constant Dividend Growth Model, what's the rate of return required by the common stock shareholder? Denote this number by
3.What's the company's WACC in period 0?
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