You are given the following information for Breckenridge, Inc.:

Debt: 5,000 9% coupon bonds outstanding, with 10 years to maturity and quoted price of 115. The bonds pay interest semiannually.

Common Stock: 64,000 shares of common stock selling for $80 per share. The stock has a beta of 1.2% and will pay a dividend of $5.60 next year. The dividend is expected to grow by 3.9% per year indefinitely

Preferred Stock: 7,000 shares of 8.7 preferred stock selling at $117 per share

Market: 11.7% expected return , risk-free rate of 2.5%, and a 25% tax rate.

What weight should Breckenridge use for debt when calculating the cost of capital?

Answer rating: 100% (QA)

Source Debt Preferred stock e... View the full answer