Company X has the following capital structure in terms of market value: Bor $20.000.000 Preferred Stock

Company ´X has the following capital structure in terms of market value:

´

´Borç $20.000.000

´Preferred Stock $8,000,000

´Ordinary Shares (120,000 shares) $32,000,000

´

'The company has a 20% marginal tax rate. The company's debt currently yields 20 percent returns. The firm pays the preferred stock holders $5 and the market price of its preferred stock is $25. The expected dividend for common stock holders is $15 where the current market price of common stock is $100. The dividend growth rate (for common stock holders) was 10 percent and is expected to continue at the same rate.

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´a) Calculate the after-tax cost of the debt.

´b) Calculate the cost of preferred stock.

´c) Calculate the cost of equity.

´d) of the firm; weighted average cost of capital.

Answer rating: 100% (QA)

a The aftertax cost of debt can be calculated using the following formula Aftertax cost of debt Pret... View the full answer