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Question 1 XYZ has been informed by its investment dealer, that bonds of equal risk and credit rating are now selling to yield 14 percent.
Question 1 XYZ has been informed by its investment dealer, that bonds of equal risk and credit rating are now selling to yield 14 percent. The common stock has a price of $49 and an expected dividend (D1) of $2.83 per share. The firm's historical growth rate of earnings and dividends per share has been 9 percent. The preferred stock is selling at $55 per share and carries a dividend of $6 per share. The corporate tax rate is 40 percent. The optimum capital structure for the firm seems to be 40 percent debt, 10 percent preferred stock, and 50 percent common equity. Required: 1. Compute the cost of capital for the individual components in the capital structure, and then calculate the weighted average cost of capital. 2. Prepare chart based on your calculations from part 1, showing cost of capital as per example below (your chart will have different numbers)
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