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QUESTION 1 You are analyzing General Apparel Corp, Below is some data on the company. The company has a dividend payout ratio of 75% and
QUESTION 1
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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%
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