Question
Afirmhasdetermineditsoptimalcapitalstructurewhichiscomposedofthefollowingsourcesandtargetmarketvalue proportions. Additionally,thefirm'smarginaltaxrateis40percent SourceofCapitalMarket Proportions Long-termdebt20% Preferredstock10 Commonstockequity70 Debt: Thefirmcansella12-year,$1,000parvalue,7percentannualbondfor$880. PreferredStock: Thefirmhasdetermineditcanissuepreferredstockat$75pershareparvalue.Thestockwillpaya$10 annualdividend. CommonStock: Afirm'scommonstockiscurrentlysellingfor$30pershare.Thedividendexpectedtobepaidattheendof thecomingyearis$1.5.Itsdividendpaymentshavebeengrowingataconstantrateof 8% A.What is the firm's cost of common stock?
Afirmhasdetermineditsoptimalcapitalstructurewhichiscomposedofthefollowingsourcesandtargetmarketvalue proportions. Additionally,thefirm'smarginaltaxrateis40percent
SourceofCapitalMarket Proportions
Long-termdebt20%
Preferredstock10
Commonstockequity70
Debt:Thefirmcansella12-year,$1,000parvalue,7percentannualbondfor$880.
PreferredStock:Thefirmhasdetermineditcanissuepreferredstockat$75pershareparvalue.Thestockwillpaya$10 annualdividend.
CommonStock:Afirm'scommonstockiscurrentlysellingfor$30pershare.Thedividendexpectedtobepaidattheendof thecomingyearis$1.5.Itsdividendpaymentshavebeengrowingataconstantrateof 8%
A.What is the firm's cost of common stock?
B.What is the firm's cost of preferred stock?
C.What is the firm's cost of debt?
D.What is the firm's weighted average cost of capital?
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Advanced Accounting
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
14th Edition
