Question
You are given the following information for Breckinridge, Inc.: Debt: 8,000 6% coupon bonds outstanding, with 8 years to maturity and a quoted price of
You are given the following information for Breckinridge, Inc.:
Debt: 8,000 6% coupon bonds outstanding, with 8 years to maturity and a quoted price of 108. These bonds pay interest semiannually.
Common Stock: 81,000 shares of a common stock selling for $75 per share. The stock has a beta of 1.7 and will pay a dividend of $4.50 next year. The dividend is expected to grow by 2.8% per year indefinitely.
Preferred Stock: 20,000 shares of 6.9% preferred stock selling at $103 per share
Market: 7.1% percent expected return, risk-free rate of 2.8 percent, and a 47% tax rate
What should Breckenridge use for the cost of debt when calculating the cost of capital?
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