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The information on Running Shoes, Inc. capital structure is following: Debt: Bond has 10% annual coupon rate on $1,000 par value, 8 years left till
The information on Running Shoes, Inc. capital structure is following: Debt: Bond has 10% annual coupon rate on $1,000 par value, 8 years left till maturity and is currently trading at $930. The total book value of debt is $5,000,000. Preferred stock: Current price $20 per share annual preferred dividend is $2 per share. The total market value of preferred stock is $2,500,000. Common equity: Stock B is 1.05. The risk free rate is 2%. The return on the market is 12.5%. The total market value of common equity is $17,500,000 The firm's tax rate is 21%. Blank #1: What is the before-tax cost of debt for this firm (in percentage)? (10 points) Blank #2: What is the cost of outstanding preferred stock (in percentage)? (No flotation cost) (10 points) Blank #3: What is the cost of common equity (in percentage)? (No flotation cost) (10 points) Blank #4: What is the firm's current weighted average cost of capital (WACC) (in percentage)? (10 points)
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