A firm has a capital structure of 30% debt, 60% common equity, and 10% preferred equity. Note:
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A firm has a capital structure of 30% debt, 60% common equity, and 10% preferred equity.
Note: the capital structure represent the weights.
Debt: The bonds pay a 8% semiannual coupon, have a $1000 par value, and have a maturity length of 7 years. The quoted price of the bonds is 110.
Common: The firm has common stock with a beta of 1.25.
Preferred: The firm has 7% preferred stock.
Market: The rate on Treasury bills is 2%, the expected return is 10%, and the tax rate facing the firm is 40%.
What is the firm's cost of debt?
What is the firms cost of equity?
What is the firms weighted average cost of capital?
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