COST OF CAPITAL

Phillips current capital structure is comprised of $200,000,000 in debt, $100,000,000 in preferred equity, and $500,000,000 in common equity. Phillips currently has issued bonds that mature in 10 years with a coupon rate of 6% and a current market price of $1,255. Preferred shares of Phillips are trading at $45/share and pay an annual dividend of $2.05/share. Common stock of Phillips has a beta of 1.4 and trades at $32/share. The 10-year US treasury yield is 3.5%. The market risk premium is estimated at 6.5%. Their tax rate is 21%.

Round answers to four decimal places (ie .1125 or 11.25%)

• What is the current cost of Phillips debt capital?
  • ["2.38%", "3.54%", "2.97%", "4.12%"]
• What is the current cost of Phillips preferred equity capital?
  • ["3.64%", "6.51%", "2.96%", "4.56%"]