Use this information for the next 2 questions: Consider the following information for HCB, Inc. (in millions, except for per share items) Financial Statement Information:

Sales $1,000 Net Income $50 Total Assets $2,000 Shareholder equity $750 Tax rate 40%

Bond Issue: 1500,000 $1,000 par value 20-year 5% coupon bonds with semiannual payments with a yield to maturity of 7%.

100 million shares of stock outstanding

Market price per share $20

1 million shares of $8 per share dividend preferred stock

Market price per share of preferred stock $ 120

HSB's stock's beta 1.20 Risk free rate 3% Market risk premium 6.5%

Recent dividend on common stock $2 per share

Expected growth rate in common stock dividends 6%

10. Calculate the percentage of debt in HSB's market value capital structure a. 32.18% b. 35.75% c. 40.40% d. 41.44% e. 75.00%

11. Calculate the CAPM required return on HSB common stock a. 10.80% b. 11.88% c. 12.96% d. 14.04% e. 16.60%

12. Assume flotation costs on HSB preferred stock are 7%. Calculate HSB preferred stock required return. a. 6.24% b. 6.52% c. 6.67% d. 7.17% e. 7.53%