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please show written out work for a better understanding XYZ is a water retailer. The market price of common stock is $40, its cash dividend
please show written out work for a better understanding
XYZ is a water retailer. The market price of common stock is $40, its cash dividend (Do) was $3.52, and the growth rate is expected to be 5.5 percent. Preferred stock has a $30 par value with a 4 percent dividend rate and currently sell for $28 per share. Additional forty-year debt can be issued at par with an 6 percent coupon rate. XYZ marginal tax rate is 40%. Currently XYZ has $500 million (market value) of bonds outstanding, $150 million (market value) of preferred stock issued, and 15 million shares of common stock issued (par-$18). XYZ beta is 1.3 and the current market risk premium is seven percent while the T-bill return is 4 percent. The stock over bond premium is 5.8 percent. The current capital structure is consider optimal. A. Find the market weight (percent) of Bond/debt . Preferred stock . Common stock/equity B. Find the required return for only preferred stock Step by Step Solution
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