Question
Ingredion is trying to estimate its cost of capital, and it has the following information. The firm has a beta of 1.5, the before tax
Ingredion is trying to estimate its cost of capital, and it has the following information. The firm has a beta of 1.5, the before tax cost of the firms debt is 6%, and the firm estimates that the risk-free rate is 3% while the current market return is 9%. Textron preferred stock currently sells for $12.00 per share. The firms promised dividends on preferred stock are $1 per year. The company has been financed by 30% debt, 15%preferred stock, and 55% common equity. The firm has a marginal tax rate of 30%. a. Calculate the cost of preferred equity b. Calculate the after-tax cost of debt c. Calculate the weighted average cost capital (WACC)
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