Jason Corporation has 30,000 outstanding shares of common stock, 20,000 outstanding shares of preferred stock, and...

 

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Jason Corporation has 30,000 outstanding shares of common stock, 20,000 outstanding shares of preferred stock, and 6,000 units of bonds outstanding. The beta of common stock is 1.2, and the share price of common stock is $50. The annual dividend of preferred stock is $10, and the share price of preferred stock is 88. The coupon rate of the bond is 8.2%, the face value of each bond is $1,000, the time to maturity of the bond is 10-year, and the bond is trading at par. It is known that the market risk premium is 10%, the risk-free rate is 2%, and the tax rate is 20%. a) Calculate the cost of common stock, the cost of preferred stock, and the pre-tax cost of debt. (5 marks) b) Calculate the capital structure weights of Jason Corporation (i.e., the weight of common stock financing, the weight of preferred stock financing, and the weight of debt financing). (5 marks) c) Calculate the weighted average cost of capital (WACC) for the firm. (2 marks) Activate Windows Jason Corporation has 30,000 outstanding shares of common stock, 20,000 outstanding shares of preferred stock, and 6,000 units of bonds outstanding. The beta of common stock is 1.2, and the share price of common stock is $50. The annual dividend of preferred stock is $10, and the share price of preferred stock is 88. The coupon rate of the bond is 8.2%, the face value of each bond is $1,000, the time to maturity of the bond is 10-year, and the bond is trading at par. It is known that the market risk premium is 10%, the risk-free rate is 2%, and the tax rate is 20%. a) Calculate the cost of common stock, the cost of preferred stock, and the pre-tax cost of debt. (5 marks) b) Calculate the capital structure weights of Jason Corporation (i.e., the weight of common stock financing, the weight of preferred stock financing, and the weight of debt financing). (5 marks) c) Calculate the weighted average cost of capital (WACC) for the firm. (2 marks) Activate Windows

Answer rating: 100% (QA)

Approach to solving the questions 1 For each of the three years we will prepare the journal entries balance sheets and income statements under both the completed contract approach and the percentage o... View the full answer