Financial Statement Information:

Sales $1,000

Net Income $50

Total Assets $2,000

Shareholder equity $750

Tax rate 40%

Bond Issue: 1500,000 $1,000 par value 20-year 5% coupon bonds with semiannual payments with a yield to maturity of 7%.

100 million shares of stock outstanding

Market price per share $20

1 million shares of $8 per share dividend preferred stock

Market price per share of preferred stock $ 120

HSB's stock's beta 1.20

Risk free rate 3%

Market risk premium 6.5%

Recent dividend on common stock $2 per share

Expected growth rate in common stock dividends 6%

Calculate the percentage of debt in HSB's market value capital structure

Calculate the CAPM required return on HSB common stock

 Assume flotation costs on HSB preferred stock are 7%. Calculate HSB preferred stock required return.

Answer rating: 100% (QA)

To calculate the percentage of debt in HSBs market value capital structure you need to find the market value of both debt and equity Then divide the m... View the full answer