Question: Estimate a company's cost of capital based on 32% tax rate and the following: Company's $8 million, 10% coupon, semi-annual payment, non-callable bonds, with

Estimate a company's cost of capital based on 32% tax rate and the following:

• Company's $8 million, 10% coupon, semi-annual payment, non-callable bonds, with 12 years left to maturity are currently trading at 0.96.

• Company's 50,000 preferred stock are currently trading at $22 each when the par value is $20 and there's 5% annual dividend.

• Company's 250,000 common stock are currently trading at $40 per share. Its beta is 1.1 and treasury yield and the market risk premium are 2.5% and 6%, respectively.

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Financial ACCT2 2nd edition by Norman H. Godwin, C. Wayne Alderman