Bamboo Shack has the following capital structure: Assets: 450,000 Debt: 105,000 Preferred Stock: 25,000 Common Stock: 320,000 The common stock is currently selling for $20 a share, pays a cash dividend of $0.85 per share, and is growing annually at 9 percent. The preferred stock pays a $11 cash dividend and currently sells for $96 a share. The debt pays interest of 10.5 percent annually, and the firm is in the 40 percent marginal tax bracket. c. What is the cost of common stock? d. What is the firm’s weighted-average cost of capital?
Bamboo Shack has the following capital structure: Assets: 450,000 Debt: 105,000 Preferred Stock: 25,000 Common Stock: 320,000 The common stock is currently selling for $20 a share, pays a cash dividend of $0.85 per share, and is growing annually at 9 percent. The preferred stock pays a $11 cash dividend and currently sells for $96 a share. The debt pays interest of 10.5 percent annually, and the firm is in the 40 percent marginal tax bracket. c. What is the cost of common stock? d. What is the firm’s weighted-average cost of capital?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Bamboo Shack has the following capital structure:
|
Assets: 450,000 |
Debt: 105,000 |
|
|
|
|
|
Common Stock: 320,000 |
The common stock is currently selling for $20 a share, pays a cash dividend of $0.85 per share, and is growing annually at 9 percent. The preferred stock pays a $11 cash dividend and currently sells for $96 a share. The debt pays interest of 10.5 percent annually, and the firm is in the 40 percent marginal tax bracket.
c. What is the cost of common stock?
d. What is the firm’s weighted-average cost of capital?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education