XYZ Company has the below capital structure: 25% debt; 15% preferred stock; and, 60% capital. The company
Question:
XYZ Company has the below capital structure:
25% debt; 15% preferred stock; and, 60% capital. The company pays an effective tax rate of 40%.
Required:
A. If the company can issue new debt at an interest rate of 12%, what is its cost of debt capital?
B. If the company can issue new senior debt with a dividend of $10 at an offering price of $90 per share, what is the cost of its preferred capital (in shares)?
C. If the "beta" of XYZ stock relative to the "stock" market were 1.2, the risk-free rate were 6%, and the market risk premium were 5%, what is the cost of equity capital ( retained earnings)?
D. Given the current capital structure, what is the weighted average cost of capital?
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher