Question
MV Pfd Corporation has debt with a coupon rate of 5% and a yield to maturity of 7%, a cost of equity of 15% and
MV Pfd Corporation has debt with a coupon rate of 5% and a yield to maturity of 7%, a cost of equity of 15% and a cost of preferred stock of 10%. Its debt has a market value of $110 million and a book value of $170 million. The common equity has a book value of $80 million and the preferred stock has a book value of $60 million. The preferred stock is currently trading at a 25% premium over its book value per share, while the common stock trades at $20 per share, with 8 million shares outstanding. The tax rate is 30%. What is this firms value of debt, D (for use in the weights)? A. $130 million B. $60 million C. $140 million D. $160 million E. $170 million F. $180 million G. $80 million H. $110 million I. $150 million
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