Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 1 6 Kinge - Cheese Incorporated has 6 , 0 0 0 , 0 0 0 shares of common stock outstanding. The company also

Question 16
Kinge-Cheese Incorporated has 6,000,000 shares of common stock outstanding. The company also has an issue of 350,000 preference shares.outstanding. Each preference share has a par value of $100 and pays a 4 percent dividend.
Kinge-Cheese Incorporated has one-hundred and twenty thousant (120,000) bonds with a semi- annual coupon of 4.8 percent outstanding, each with a par value of $1,000.
The common stock currently sell for $60 per and has a beta of 1.05, the preferred stock currently
sells for $106 per share, and the bonds have 20 years to maturity and sell for 102 percent of par.
The market risk premium is 7.5 percent, Treasury bills are yielding 2.4 percent, and the company's tax rate is 22 percent.
Required:
What is the firm's cost of common equity? (3 marks)
What is the firm's cost of preferred equity? (2 marks)
What is the firm's after-tax cost of debt? (4 marks)
What is the market value of each element in the firm's capital structure? (3 marks)
What is Kinge-Cheese Inc.s weighted average cost of capital? (6 marks)
Briefly discuss one advantage of using the SML approach to finding the cost of equity
capital? (2 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

American Public School Finance

Authors: William A. Owings, Leslie S. Kaplan

3rd Edition

113849996X, 978-1138499966

More Books

Students also viewed these Finance questions