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Suppose you are given the following data of a public firm with the following assets: The firm has an outstanding bond with 5 years of
- Suppose you are given the following data of a public firm with the following assets:
- The firm has an outstanding bond with 5 years of remaining maturity, pays 10% coupon, semiannually. The bond is noncallable and is currently traded for 1,300. The bond has a face value of 1000. New bonds will be privately placed with no flotation cost. Suppose that the yield to maturity of this bond was estimated at 8%.
- The firm operates in a country where marginal tax rate is 30%.
- The firm has outstanding preferred stock that pays 10%, 100 par value, quarterly dividend, perpetual preferred stock sells for 115.
- The firm also has common stock currently traded for 100 per share and pays dividend per share (D0) = 3 and dividend is growing by 6% per annum. The firms beta (b) = 1.2; risk-free rate (rRF) = 6%; market risk premium (RPM) = 8%.
- The firm has long-term and steady capital structure policy as follows: 40% debt, 10% preferred, 50% common equity.Task: Compute the cost of each asset and construct the weighted average cost of capital for the underlined firm.
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