Company X has the following capital structure in terms of market value: Bor $20.000.000 Preferred Stock
Question:
Company ´X has the following capital structure in terms of market value:
´
´Borç $20.000.000
´Preferred Stock $8,000,000
´Ordinary Shares (120,000 shares) $32,000,000
´
'The company has a 20% marginal tax rate. The company's debt currently yields 20 percent returns. The firm pays the preferred stock holders $5 and the market price of its preferred stock is $25. The expected dividend for common stock holders is $15 where the current market price of common stock is $100. The dividend growth rate (for common stock holders) was 10 percent and is expected to continue at the same rate.
´
´a) Calculate the after-tax cost of the debt.
´b) Calculate the cost of preferred stock.
´c) Calculate the cost of equity.
´d) of the firm; weighted average cost of capital.
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy