Question
Consider the following capital structure for Sea Shore Corporation. The company has a publicly-traded bond issue, preferred shares, and common equity in its capital structure.
Consider the following capital structure for Sea Shore Corporation. The company has a publicly-traded bond issue, preferred shares, and common equity in its capital structure. The firms tax rate is 35%. The risk-free rate is 7%.
Details on the components of the capital structure are listed below.
| Debt: | Fixed coupon-paying bond issue |
| $80 million par | |
| 6% semiannual coupon | |
| Remaining maturity of 10 years | |
| Currently priced in market at 105% of par value | |
| Preferred equity: | $100 million par |
| 6% annual coupon | |
| Each $1,000 par issue is currently priced at $925. | |
| Common equity: | 10 million shares outstanding |
| Current share price: $40 | |
| Stock beta: 0.5 | |
| Market risk premium = 10% |
Sea Shores weighted average cost of capital (wacc) is closest to:
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