Question
Suppose Jaffe Co. has the following financial information: Debt: 75,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 94% of
Suppose Jaffe Co. has the following financial information:
Debt: 75,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 94% of par and have 15 years to maturity. The coupon rate equals 4%, and the bonds make semiannual interest payments.
Preferred stock: 400,000 shares of preferred stock outstanding; currently trading for $92 per share and it pays a dividend of $3.33 per share every year.
Common stock: 2,500,000 shares of common stock outstanding; currently trading for $54 per share. Beta equals 1.15.
Market and firm information: The expected return on the market is 8%, the risk-free rate is 1%, the tax rate is 21%
Calculate the weighted average cost of capital. (Enter percentages as decimals and round to 4 decimals)
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