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A company has 10,000 bonds outstanding, which are sold for 110 percent of par. The par value is $1,000. The yield to maturity is 8%.
A company has 10,000 bonds outstanding, which are sold for 110 percent of par. The par value is $1,000. The yield to maturity is 8%. The company has 150,000 shares of common stock, selling for $50 per share. The next dividend is expected to be $5 per share. After that, the dividend will grow at 2% per year. The company also has 20,000 shares of preferred stocks, currently selling for $30. The preferred stocks pay a dividend of $3 per share every year. The corporate tax rate is 21%. a. What is the capital structure of the company? (hint: the weight of each financing) (5 marks) b. What are cost of equity, cost of debt, and cost of preferred stock? (5 marks) c. What is the cost of capital of the company? (2 marks)
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