American Steel has issued $50 million in long-term bonds, with a face value of $1,000 paying a 9% coupon. The bonds are now trading at a 15% premium to their face value providing a yield-to-maturity of 7%. The firm also has 1.5 million shares of common stock that were issued at $43/share at the company’s IPO and are currently trading at $56/share. American Steel is a mature firm that paid a $7 dividend last year, and dividends are expected to grow at 2% indefinitely. American Steel also has 500,000 preferred shares issued that is trading at $10/share with a dividend of $1. Treasury bills are currently yielding 5%, the firm has a Beta of 1.1, and its tax rate is 35%. Please show your answer in one decimal place.

i) What is the value of the firm?

ii)What is the market value of the firm’s debt and equity (common/pref)?

iii) What is the firm’s weighted average cost of capital?

Answer rating: 100% (QA)

Given Face value 1000 Premium value 1000 15 of 1000 1150 Coupon rete 9 Yield to maturity or Cost of ... View the full answer