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Currently, the XYZ firm has a share price of $20. Next year, the firm is expected to pay a $1 dividend per share. After that,
Currently, the XYZ firm has a share price of $20. Next year, the firm is expected to pay a $1 dividend per share. After that, the dividends will grow at 4 percent per year.
- What is an estimate of the firms cost of equity?
- The firm also has preferred stock outstanding that pays a $2 per share fixed dividend. If this stock is currently priced at $28, what is firms cost of preferred stock?
- The company has an existing debt issued three years ago with a coupon rate of 6%. The firm just issued new debt at par with a coupon rate of 6.5%. What is the pretax cost of debt of the company?
- The company has 5 million common shares outstanding and 1 million preferred shares outstanding, and its equity has a total book value of $50 million. Its liabilities have a market value of $20 million. If firms common and preferred shares are priced as in parts (a) and (b), what is the market value of the firms assets?
- The company faces a 35% tax rate. Given the information in parts (a) through (d), and your answers to those problems, what is XYZs WACC?
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