Question
Tesla has a target capital structure consisting of 30% debt, 5% preferred stock, and 65% common equity. Tesla has 20-year, 7.25% semiannual coupon bonds that
Tesla has a target capital structure consisting of 30% debt, 5% preferred stock, and 65% common equity. Tesla has 20-year, 7.25% semiannual coupon bonds that are selling for $875. Teslas preferred stock sells for $95 and pays a 9% dividend on a $100 par value. Tesla is a constant growth firm with a growth rate of 4% and just paid a dividend of $2.35 on its common stock that is currently selling for $30.00 per share. The beta is 1.25 and the risk-free rate is 5.25%. The required return on the stock market is 11.50%. The firms tax rate is 25%. 1. What is thier after-tax component cost of debt? 2. What is their component cost of preferred stock? 3. What is their component cost of common equity based on the CAPM?
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