Suppose Westerfield Co. has the following financial information: Debt: 400,000 bonds outstanding with a face value of
Question:
Suppose Westerfield Co. has the following financial information:
Debt: 400,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 88% of par and have 15 years to maturity. The coupon rate equals 4%, and the bonds make semiannual interest payments.
Preferred stock: 300,000 shares of preferred stock outstanding; currently trading for $90 per share and it pays a dividend of $5.45 per share every year.
Common stock: 5,000,000 shares of common stock outstanding; currently trading for $78.50 per share. Beta equals 1.08.
Market and firm information: The expected return on the market is 10%, the risk-free rate is 2%, the tax rate is 21%.
Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)
Intermediate Accounting Volume 2
ISBN: 9781260881240
8th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel