Financial Statement Information:

Sales $1,000

Net Income $50

Total Assets $2,000

Shareholder equity $750

Tax rate 40%

Bond Issue: 1500,000 $1,000 par value 20-year 5% coupon bonds with semiannual payments with a yield to maturity of 7%.

100 million shares of stock outstanding

Market price per share $20

1 million shares of $8 per share dividend preferred stock

Market price per share of preferred stock $ 120

HSB's stock's beta 1.20

Risk free rate 3%

Market risk premium 6.5%

Recent dividend on common stock $2 per share

Expected growth rate in common stock dividends 6%

10. Calculate the percentage of debt in HSB's market value capital structure

a. 32.18%

b. 35.75%

c. 40.40%

d. 41.44%

e. 75.00%

11. Calculate the CAPM required return on HSB common stock

a. 10.80%

b. 11.88%

c. 12.96%

d. 14.04%

e. 16.60%