Question
Repo Corp. has hired you to calculate its cost of capital. It has $60 million in debt, $20 million in preferred stock and $120 million
Repo Corp. has hired you to calculate its cost of capital. It has $60 million in debt, $20 million in preferred stock and $120 million in common stock and its tax rate is 40%. Its bonds have semi-annual coupons, an annual coupon rate of 9.79%, a face value of $1,000 and a maturity of 20 years. The current market value of each bond is $1000. The preferred stock has a current market value of $40.00 and a dividend of $4.50 per year. The common stock will pay a dividend of $1.85 in 1 year, has a current price of $26.00 and a growth rate of 6%. What is Repo's annual cost of debt, rd?
A) 9.22%
B) 8.38%
C) 10.56%
D) 9.79%
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