Question
Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table below shows financial information on the firm. 2018 Balance
Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table below shows financial information on the firm.
| 2018 Balance Sheet: | |
|---|---|
| Interest bearing debt | $555,635.00 |
| Preferred stock | $47,428.00 |
| Shareholder equity | $750,000.00 |
Duffy has publicly traded common stock that has a capitalization currently of $1,710,860.00.
An analyst has estimated that the cost of debt for Duffy is 6.00%, the cost of the preferred stock is 10.00%, and the cost of the common equity is 14.00%. Duffy has a marginal tax rate of 35.00%.
a) What is the weight in common stock for Duffy?
b) What is the cost of capital for Duffy?
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International Financial Management
Authors: Cheol Eun, Bruce Resnick
5thEdition
0073382345, 9780073382340
