Question: Balance sheet targets Total liabilities = 45% Preferred stock = 2% Total common equity = 53% Additional information: Debt information Interest rate = 13% Tax

Balance sheet targets

Total liabilities = 45%

Preferred stock = 2%

Total common equity = 53%

Additional information:

Debt information

Interest rate = 13%

Tax rate = 26%

Preferred stock

Preferred stock dividend = $10

Preferred stock price = $95

Equity

Capital Asset Pricing Model (CAPM)

Risk free rate = 7%

Market risk premium = 5,5%

Beta = 1,3

Bonds yield plus premium

Bond yield = 12%

Risk premium = 5%

Bond yield + risk premium = 17%

Discounted cashflow

Common dividend = $1,6

Common stock price = $26

Expected growth = 8,5%

Questions

1). Average Rs?

2). What is the Weighted Average Cost of Capital (WACC) from the information above?

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