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You have been assigned to calculate the Weighted-Average-Cost-of-Capital for your firm, which has two sources of long-term capital. The company's marginal tax rate is 25%.
You have been assigned to calculate the Weighted-Average-Cost-of-Capital for your firm, which has two sources of long-term capital. The company's marginal tax rate is 25%. First, there are 207,500 shares of common stock, which are currently selling for $41.93. You estimate that the firm's Beta is 0.95 . The current return on short-term TBill is 2.25%, and you expect the long-term return on the stock market to be about 9.75%. Second, the firm has 43,000 shares of preferred stocks outstanding, which promise annual (perpetual) dividends of $3.90. These stocks are currently selling for $54.32 per share. 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 fourteen years. These bonds are currently trading for $952.35. What is the weight of the firm's assets held by the bond holders. 27.97% 62.65% 28.96% 56.78%
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