Question: 16. Answer questions 16-19 using the information below. Book Value Number Outstanding Current Market Price Debt $400,000,000 400,000 $1,040.00 Preferred equity $150,000,000 2,500,000 $65.00 Common
16. Answer questions 16-19 using the information below.
|
| Book Value | Number Outstanding | Current Market Price |
| Debt | $400,000,000 | 400,000 | $1,040.00 |
| Preferred equity | $150,000,000 | 2,500,000 | $65.00 |
| Common equity | $450,000,000 | 3,200,000 | $150.00 |
- The most recent bond that the company issued had 7% yield to maturity.
- The company pays $6 annual dividend to its preferred shareholders.
- The company has a beta equal to 1.6. The risk free rate is 3% and the expected rate of return of the market is 9%.
- Marginal tax rate is 30%.
What's the cost of debt? (assume there is no floataiton costs, transaction or commission fees to issue new bonds)
| A. | $6 | |
| B. | 7% | |
| C. | $1,040 | |
| D | 3% |
17. What's the cost of preferred equity for the company?
| A. | 9.2% | |
| B. | 3% | |
| C. | $65 | |
| D. | 43% |
18. What's the cost of common equity for the firm?
| A. | 12.6% | |
| B. | 14.4% | |
| C. | 17.4% | |
| D. | 9.6% |
19. What's the WACC (adjusted for tax) of the firm?
| A. | 7% | |
| B. | 8% | |
| C. | 9% | |
| D. | 6% |
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