You have been asked to evaluate the investment opportunity for a company your firm would like to invest in. From all the available data that you have compiled, you have summarized the following information:

• 2,500,000 shares of common stock outstanding at $1 par
• Current market value of common stock is $24.43 per share
• Annual dividend per share is $1.95
• $1,750,000 bonds, 6.25% coupon, with a current market value of $104 (price of $104 for every $100 bond).
• $2,250,000 bonds, 5.75% coupon, with a current market value of $94.50 (price of $94.50 for every $100 bond).
• The corporate tax rate is 35%
• 950,000 share of preferred stock outstanding, par $10 with a stated preferred dividend rate of 5% and a current market value of common stock is $15.63 per share

Please calculate the current market yield, for an outside investor, for the:

1. Common stock
2. 6.25% bond
3. 5.75% bond
4. Preferred stock.

Answer rating: 100% (QA)

To calculate the current market yield for each investment we need to divide the annual income genera... View the full answer