Question
A firm that pays a 21% corporate income tax has 1,500,000 shares of common stock outstanding trading at $80 per share and 50,000 bonds outstanding
A firm that pays a 21% corporate income tax has 1,500,000 shares of common stock outstanding trading at $80 per share and 50,000 bonds outstanding trading at $960 per bond. The firms stock distributes a dividend at the end of every year that grows at a 4% annual rate. The next dividend it will distribute, at the end of this year, will be $8. The firms bonds have 20 years left to maturity, a $1000 par value and a 8% coupon rate, with coupons paid quarterly.
(A) What is the capital structure weight of debt?
(B) What is the capital structure weight of equity?
(C) What is the required return on equity?
(D) What is the required return on debt?
(E) What is the cost of capital?
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