Question
A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Additionally, the firm's marginal tax
A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Additionally, the firm's marginal tax rate is 40 percent
Source of Capital Market Proportions
Long-term debt 20%
Preferred Stock 10%
Common Stock Equity 70%
Debt: The firm can sell a 12- year, $1,000 par value, 7 percent annual bond for $880.
Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend.
Common Stock: A firm's common stock is currently selling for $30 per share. The dividend expected to be paid at the end of the coming year is $1.5. Its dividend payments have been growing at a constant rate of 8%
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What is the firms cost of common stock?
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What is the firms cost of preferred stock?
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What is the firms cost of debt?
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What is the firms weighted average cost of capital?
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