Answered: A. Torch Industries can issue perpetual…

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 4FPE: The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million...

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A. Torch Industries can issue perpetual preferred stock at a price of $55.00 a share. The stock would pay a constant annual dividend of $4.50 a share. What is the company's cost of preferred stock, r_p? Round your answer to two decimal places. = %_______

B. The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 8%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1,180. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.

Assets		Liabilities And Equity
Cash	$ 120		Accounts payable and accruals	$ 10
Accounts receivable	240		Short-term debt	60
Inventories	360		Long-term debt	1,120
Plant and equipment, net	2,160		Common equity	1,690
Total assets	$2,880		Total liabilities and equity	$2,880

Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations.Round your answer to two decimal places.= %__

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