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Kitty Corporation has 10,000 outstanding shares of preferred stock with annual dividend per share of $7. The share price of the preferred stock is at
Kitty Corporation has 10,000 outstanding shares of preferred stock with annual dividend per share of $7. The share price of the preferred stock is at $93. There are 5,000 bonds outstanding. The bond price is $960, the yield to maturity is 8.51%, and the coupon rate is 8.2%. It is known that the market risk premium is 7.5%, the risk-free interest rate is 2.6% and the tax rate is 21%. There are 4,380 outstanding shares of common stock with a beta of 1.54 and a market price of $510. a) Calculate the cost of preferred stock, the cost of debt, and the cost of common stock. (5 marks) b) What are the capital structure weights of the company (i.e. the weight of preferred stock financing, weight of debt financing, and weight of preferred stock financing)? (5 marks) c) What is the cost of capital of Kitty Corporation? (2 marks)
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