Question
Sareta. has the following capital structure.It has two classes of common stock.Class A voting shares have a market value of $600 million and a beta
Sareta. has the following capital structure.It has two classes of common stock.Class A voting shares have a market value of $600 million and a beta of 1.20, while Class B non-voting shares have a market value of $400 million.There are 40 million Class B shares, each share is expected to pay a dividend of $0.70 next year, and these dividends are expected to grow at a rate of 4% per year for the foreseeable future.
There are also two series of bonds, series Y and series Z.There are a million bonds of each type of bond.Series Y bonds have a zero coupon rate, mature in ten years, and are selling for $650 per bond.Series Z bonds also mature in 10 years, have a coupon rate of 8%, and are yielding 5%.Assume that coupons are paid semi-annually.
The expected market risk premium is 6% and the risk-free rate is 3%.The company faces a tax rate of 20%.What is the cost of capital for Sareta?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started