PRACTICE QUESTIONS. PLEASE SHOW ALL WORK.

USE DATA BELOW FOR 20-21

Data: A 15-year, 12% coupon, semiannual payment non-callable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost. A 10%, $1,000 par value, annually dividend, perpetual preferred stock sells for $1,111. Both an existing common stock and a new common stock issue, which incurs no flotation cost of the proceeds, sells for $50. D = $4.3995 and g = 5%. b = 1.2; r = 7%;RP = 6%. RF 1 M Bond-Yield Risk Premium (RP)=4%. Target capital structure: 30% debt, 10% preferred, 60% common equity. Tax rate is 40%. 20. Which one is the interest rate on debt or bond, calculated from the above data? a. 11.10% b. 10% c. 14.2% d. 14.0% e. 9% Ro=5%x2=10% INPUTS 30 -1153.72 60 1000 N 1/YR PV PMT FV OUTPUT 5 21. Which one is the cost of preferred stock, calculated from the above data? a. 11.10% b. 10% c. 14.2% d. 14.0% e. 9% = r = D/P = $100/$1111= 9% D