Question: A company has the following capital structure: Security Expected return Market value Debt 5 1000 Preferred stocks 6 300 Common stocks 13 1200 What is

  1. A company has the following capital structure:

Security

Expected return

Market value

Debt

5

1000

Preferred stocks

6

300

Common stocks

13

1200
  1. What is the expected return on equity (cost of equity):

(a) 11.6%

(b) 10.6%

(c) 12.6%

(d) 9.6%

(e)

B. What discount rate should the company use for evaluating investment projects with similar risk (Tc=16%)?

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