Question
You have been assigned to calculate the Weighted-Average-Cost-of-Capital for your firm, which has three sources of long-term capital. The companys marginal tax rate is 25%.
You have been assigned to calculate the Weighted-Average-Cost-of-Capital for your firm, which has three sources of long-term capital. The companys marginal tax rate is 25%.
First, there are 507,500 shares of common stock, which are currently selling for $41.93. Recently, the firm announced EPS of $3.87. You feel that it is reasonable to assume that earnings will grow at 1.35% into the future.
Second, there are 45,000 shares of preferred stock outstanding that pay annual dividends of $3.50. These stocks are currently selling for $53.62.
Third, there is an issue of 4,500 coupon bonds with a face value of $1,000, which pays 5.10% (annual) coupons, and mature in eleven years. These bonds are currently trading for $948.07.
What is the firms weighted-average-cost-of-capital?
Group of answer choices
9.27%
9.80%
9.58%
9.37%
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