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Question 6 (2.5 points) Consider the following scenario: Suppose a company has 100 million common shares outstanding, and each share sells for $20. We have

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Question 6 (2.5 points) Consider the following scenario: Suppose a company has 100 million common shares outstanding, and each share sells for $20. We have estimated that the shares have a beta of 1.2, the risk-free rate is 3%, and the expected market return is 8%. The marginal tax rate for this company is 21%. The company also has $2 billion of bonds outstanding and the yield to maturity on these bonds is 5%. The company has a target capital structure of 60% equity and 40% debt. It does not and will not issue preferred stocks in the future. What is the cost of equity for this company? A) 8% B) 7% C) 6% D) 9% Question 5 (2.5 points) Hippo company has a preferred stock that pays a 6% annual coupon selling for 150% of par. What is the cost of preferred stock for the company? A) 6% B) 4% C) 5% D) 7%

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