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Assume the companys tax rate is 38%. Debt: 5,500 7 percent semi-annual coupon bonds outstanding, $1000 par value, 26 years to maturity, selling for 103

Assume the companys tax rate is 38%.

Debt: 5,500 7 percent semi-annual coupon bonds outstanding, $1000 par value, 26 years to maturity, selling for 103 percent of par.

Common Stock: 80,000 shares outstanding. The 3-month T-bill rate is 1%, the market rate of return is 12% and the stock has a beta value of 1.2. The stock is currently trading at $50.

Preferred Stock: 13,000 shares of 6 percent preferred stock outstanding, currently selling for $106 per share.

  1. What is the companys capital structure? (i.e. find the weights [WD + WE + WP = 100%])
  2. What is the cost of debt? (2 marks)
  3. What is the firms cost of equity? (2 marks)

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