Capital structure is 40% debt, 10% preferred stock, and 50% common equity Common

Question

Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $35.00 The expected CS dividend is $1.50 Growth rate is 7.00% Flotation cost on CS $1.45 Flotation cost on PS $1.10 Preferred stock sells for $48.00 PS pays a dividend of $4.00 Market yield on bonds is 9.75% Tax rate is 34.00%

Calculate the firm?s cost of debt Select one: A. 8.53% B. 6.44% C. 11.29% Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $45.00 The expected CS dividend is $2.00 Growth rate is 6.00% Flotation cost on CS $2.25 Flotation cost on PS $1.10 Preferred stock sells for $50.00 PS pays a dividend of $4.00 Market yield on bonds is 11.25% Tax rate is 34.00%

Calculate the firm?s cost of preferred stock Select one: A. 7.43% B. 8.18% C. 10.44% Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $35.00 The expected CS dividend is $1.50 Growth rate is 7.00% Flotation cost on CS $1.45 Flotation cost on PS $1.10 Preferred stock sells for $48.00 PS pays a dividend of $4.00 Market yield on bonds is 9.75% Tax rate is 34.00%

Calculate the firm?s cost of debt Select one: A. 8.53% B. 6.44% C. 11.29% Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $45.00 The expected CS dividend is $2.00 Growth rate is 6.00% Flotation cost on CS $2.25 Flotation cost on PS $1.10 Preferred stock sells for $50.00 PS pays a dividend of $4.00 Market yield on bonds is 11.25% Tax rate is 34.00%

Calculate the firm?s cost of preferred stock Select one: A. 7.43% B. 8.18% C. 10.44% Select one: A. 8.53% B. 6.44% C. 11.29% Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $45.00 The expected CS dividend is $2.00 Growth rate is 6.00% Flotation cost on CS $2.25 Flotation cost on PS $1.10 Preferred stock sells for $50.00 PS pays a dividend of $4.00 Market yield on bonds is 11.25% Tax rate is 34.00%

Calculate the firm?s cost of preferred stock Select one: A. 7.43% B. 8.18% C. 10.44% A. 8.53% B. 6.44% C. 11.29% Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $45.00 The expected CS dividend is $2.00 Growth rate is 6.00% Flotation cost on CS $2.25 Flotation cost on PS $1.10 Preferred stock sells for $50.00 PS pays a dividend of $4.00 Market yield on bonds is 11.25% Tax rate is 34.00%

Calculate the firm?s cost of preferred stock Select one: A. 7.43% B. 8.18% C. 10.44% Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $45.00 The expected CS dividend is $2.00 Growth rate is 6.00% Flotation cost on CS $2.25 Flotation cost on PS $1.10 Preferred stock sells for $50.00 PS pays a dividend of $4.00 Market yield on bonds is 11.25% Tax rate is 34.00%

Calculate the firm?s cost of preferred stock Select one: A. 7.43% B. 8.18% C. 10.44% Select one: A. 7.43% B. 8.18% C. 10.44% A. 7.43% B. 8.18% C. 10.44% Capital structure is

• 40% debt,
• 10% preferred stock, and
• 50% common equity

Common stock currently sells for $35.00 The expected CS dividend is $1.50 Growth rate is 7.00% Flotation cost on CS $1.45 Flotation cost on PS $1.10 Preferred stock sells for $48.00 PS pays a dividend of $4.00 Market yield on bonds is 9.75% Tax rate is 34.00%

Explanation / Answer

Cost of debt = yield*(1-tax rate) = 9.75%*(1-34%) = 6.44%. So answer is choice B.

Cost of preferred stock = dividend/(stock price-flotation cost) = 4/(50-1.1) = 8.18%. So answer is choice B.

Hope this helped ! Let me know in case of any queries.

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