QUESTION 1

1. You are analyzing General Apparel Corp, Below is some data on the company.

   • The company has a dividend payout ratio of 75% and a ROE of 16%. It expects to pay a dividend of $2 next year.
   • General Apparel has 10,000 shares of common stock outstanding with a current stock price of $40.
   • The beta of the companys equity is 1.4.
   • T-bills are currently yielding 4% and the market risk premium is 5%.
   • General Apparel issued 20-year bonds with an 5% semiannual coupon five years ago. The current bond price is $1,350. The total market value of their debt outstanding is $200,000.
   • General Apparels bond rating is AA and the average yield on AA bonds is currently 3%.
   • The company has 2,000 shares of preferred stock outstanding on which it pays a constant $3 dividend. The current preferred stock price is $35.
   • The corporate tax rate is 25%.

   1. Calculate weights of each of General Apparels sources of capital

   		None of these answers are correct
   		wd = 59.7%; wp = 10.4%; we = 29.9%
   		wd = 29.9%; wp = 10.4%; we = 59.7%
   		wd = 33.3%; wp = 33.3%; we = 33.3%