CSM Inc. has the following balance sheet (in $000):
Assets:                                                         Liabilities and equity:
Current assets 13,500                              Short-term debt 17,400
Long-term investments 3,135                 Long-term debt 45,000
PP&E 30,900                                                Other liabilities 42,600
Other assets 112,465                                  Preferred stock 10,000
Common equity 45,000
Total assets 160,000                              Total liabilities and equity 160,000

Debt: The interest cost for short-term debt is 3%. For long-term debt, the company has only one semiannual coupon bond outstanding. The coupon rate is 6%; time to maturity is 10 years and change the answers; and current bond price is 90% of face value. Corporate tax rate is 20%.

Preferred stocks: 1 million shares; dividend $6 per share with market price of $100.

Common stocks: 3 million shares outstanding; stock price $50 per share; beta is 0.5; T-bond rate is 3%;
the market return is 15%.

The company finances all of its projects with long-term debt, preferred stocks and common stocks.

1. Required
   1. Estimate before-tax cost of debt (%).
   2. Estimate cost of preferred stocks (%).
   3. Estimate cost of common stocks (%)
   4. Cost of capital = _________% based on market value weights
2. 5. Cost of capital = _________% based on book value weights
   6. Name two applications of cost of capital.

Answer rating: 100% (QA)

To estimate the various costs of capital components and the overall cost of capital we will use the information provided Estimate beforetax cost of debt The beforetax cost of debt is the yieldtomaturi... View the full answer