Question
Capital Asset Pricing: XYZ Inc. has the following information: Total Market Value of Long-Term Debt: $900,000; Weight 37% Total Market Value of Preferred Stock: $30,000;
Capital Asset Pricing: XYZ Inc. has the following information:
Total Market Value of Long-Term Debt: $900,000; Weight 37%
Total Market Value of Preferred Stock: $30,000; Weight 1.2%
Total Market Value of Common Stock: $1,500,000; Weight 61.7%
Tax Rate= 21% YTM on Bonds= 7.8%
Annual Preferred Dividend= $4.75
Preferred Stock Price= $41
Flotation Costs on Issuance of New Preferred Stock= 4%
Next Years Expected Common Stock Dividend= $2.25
Current Common Stock Price= $49
Expected Dividend Growth Rate= 6.5%
1) Compute the cost of preferred stock
2) Compute the cost of common stock
3) Compute the Weighted Average Cost of Capital (WACC)
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