Consider the following company,

Book Value of Debt	$50 million
YTM	10%
Coupon	7%
Coupon Payments	semi-annually
Years	20
Corporate Tax Rate	33%
# of Preferred Shares	2 million
Price of Preferred Share	$25
Dividend per Preferred Shares	$1.33
# of Common Shares	9.5 million
Price of Common Share	$19
of Common Stock	1.3
Risk-Free Rate	4%
Market Return	10%

a. What is the market value of the debt? Enter your answer in terms of millions and rounded to 2 DECIMAL PLACES.

Enter your response below. Correct response: 37.130.03 million

Click "Verify" to proceed to the next part of the question.

b. What is the rate of return on the preferred stock? Enter you answer as a percentage and rounded to 2 DECIMAL PLACES. Do not include the percentage sign in your answers.

Enter your response below. Correct response: 5.320.01%

c. What is the market value of the preferred stock? Enter your answer in terms of millions.

Enter your response below. Correct response: 500.01 million

d. What is the rate of return of the equity? Enter your answer as a percentage. Do not include the percentage sign in your answers.

Enter your response below. %

Click "Verify" to proceed to the next part of the question.

Answer rating: 100% (QA)

To solve this problem we first need to find the market value of the debt then the rate of return on the preferred stock followed by the market value of the preferred stock and finally the rate of retu... View the full answer