You are evaluating Company J and know the following (all data are on an annual basis except
Question:
You are evaluating Company J and know the following (all data are on an annual basis except where indicated):
The marginal corporate tax rate is 35%. The YTM (yield to maturity) on the debt of Company J, taking into account flotation costs is 5.2%. Company J issued preferred stock for $640.00 per share net of flotation costs. The preferred pays a quarterly dividend of $16.64 per share. The book value of the debt is $20 million and you decide that this is close to the market value of the debt. The market value of all the preferred shares is $12 million, and the market value of the common stock is $48 million. Please round to four decimal places in your calculations.
What is the annual expected return for Company J's common stock? .1880
What is the annual expected return for Company J's preferred stock (the cost of preferred)? .1081
What is the annual WACC (weighted average cost of capital) for Company J? .1375
Fundamentals of corporate finance
ISBN: 978-0078034633
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan