BOOK

Accounts Payable $120,124

Accruals and Other Current Liabilities 64,111

Notes Payable (for working capital) 58,125

TOTAL CURRENT LIABILITIES 242,360

Long-term Debt 275,000

TOTAL LIABILITIES 517,360

Preferred Stock (par $100) 5,000

Common Equity ($1 par) 10,000

Excess of Par 40,000

Retained Earnings 458,445

TOTAL LIABILITIES AND EQUITY $1,030,805

Exhibit V: Market, Industry, and SCRPCs Financial Information

Treasury Bill Rate 4.25%

Long-term Government Bond Yield 7.45%

Long-term Corporate Bond Yield 8.75%

Average Beta for Industry 1.25

SCRPCS Beta 1.45

Average P/E Ratio for Industry 13.50

SCRPCS Recent P/E Ratio 10.75

Recent Price of SCRPCs Common Stock $36.01

SCRPCs Tax Rate 40%

SCRPCs Bond Risk Premium 4.0%

SCRPCs Bonds are selling at $910 with a Coupon. Rate of 7.25 and maturity of 14 years. Floatation costs for the bonds would be $5 per bond. SCRPCs preferred stock ($100 par) pays a $14 dividend and is selling for $110. The firm would have a $5 floatation cost if it sold preferred stock today. If SCRPC sold additional common stock, the floatation cost and the decline in value would be about 20% of the current price.

Question:

Calculate the cost of common stock using the Capital Asset Pricing Model.