Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

rse D Question 8 12 pts You have been assigned to calculate the Weighted-Average-Cost-of-Capital for your firm, which has three sources of long-term capital.

image text in transcribed

rse D Question 8 12 pts You have been assigned to calculate the Weighted-Average-Cost-of-Capital for your firm, which has three sources of long-term capital. The company's marginal tax rate is 25%. First, there are 207,500 shares of common stock, which are currently selling for $41.93. You estimate that the firm's Beta is 1.20. The current return on short-term T-Bill is 1.25%, and you expect the long-term return on the stock market to be about 9.75%. Second, there are 45,000 shares of preferred stock that pay an annual (perpetual) dividend of $3.15, and the cuurrentshare price is 37.40. Third, there is an issue of 4,500 coupon bonds with a face value of $1,000, which pays 5.10% (annual) coupons, and mature in eleven years. These bonds are currently trading for $948.07. What is the firm's weighted-average-cost-of-capital? 9.42% O9.02% 07.08% 8.77%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance Turning Money into Wealth

Authors: Arthur J. Keown

7th edition

978-0133856507, 013385650X, 133856437, 978-0133856439

More Books

Students also viewed these Finance questions

Question

=+d. Derive the IRR of each project.

Answered: 1 week ago

Question

=+c. Calculate the NPV of each project at 9%.

Answered: 1 week ago