Fair and equitable has to determine its cost of capital using the following information: The firm has

Question:

Fair and equitable has to determine its cost of capital using the following information:

The firm has $30,000,000 in corporate bonds currently selling at 97.5. The bonds mature in 9 years and have an annual coupon rate of 6.6% paid semiannually. F&E faces a 35% tax rate. This firm has 1,500,000 shares of preferred stock that pays a dividend of $0.80 per year and currently sells for $9.00 per share.

Common stock selling for $3.45 per share has just paid a dividend of $0.29 and is expected to grow by 4% forever. The firm has a beta of 1.3 and the risk free rate on treasury securities is 3%. The average return on the S&P500 is 10.54%.

Calculate the cost of capital for the firm. Fair and Equitable has 20 million common shares outstanding Based on the information below, calculate the weighted average cost of capital.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...