Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ardoin Enterprises has to determine its cost of capital using the following information: The firm has $40,000,000 in corporate bonds currently selling at 97.5. (Bonds

Ardoin Enterprises has to determine its cost of capital using the following information:

The firm has $40,000,000 in corporate bonds currently selling at 97.5. (Bonds sell at a percentage of par value) The bonds mature in 12 years and have an annual coupon rate of 6.9% paid semiannually. The firm faces a 32% tax rate and has 1,500,000 shares of preferred stock that pays a dividend of $0.80 per year and currently sells for $9.10 per share.

Common stock selling for $3.58 per share has just paid a dividend of $0.32 and is expected to grow by 4% forever. The firm has a beta of 1.42 and the risk free rate on treasury securities is 2.25%. The average return on the S&P500 is 10.54%.

Calculate the cost of capital for the firm. Ardoin Enterprises has 25 million common shares outstanding. Written out NOT excel or tables

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

A Fast And Frugal Finance

Authors: William P. Forbes, Aloysius Igboekwu, Shabnam Mousavi

1st Edition

0128124954, 978-0128124956

More Books

Students also viewed these Finance questions

Question

Discuss five types of employee training.

Answered: 1 week ago

Question

Identify the four federally mandated employee benefits.

Answered: 1 week ago