Question
Capital Structure Use this info for 5 questions. DEI, Inc. (DEI), a leader in radar detection systems (RDSs) is looking at setting up a manufacturing
Capital Structure
Use this info for 5 questions. DEI, Inc. (DEI), a leader in radar detection systems (RDSs) is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. DEI will use the following to fund the project. (1) 2,500 5.8% bonds with 25 years to maturity, selling for 103% of par, and makes semiannual payments. (2) 3,900 preferred stock outstanding, selling for $87 per share, and paying $6.2 dividend annually. (3) 46,900 shares outstanding, selling for $95 per share; the beta is 1.77. In addition, DEI uses market risk premium of 6.4% and the T-bill rate of 2.7%. The tax rate is 21%.
What is the cost of equity?
a. 8.88%
b. 14.03%
c. 7.38%
d. 10.37%
e. 15.63%
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