Estimate your firm’s Weighted Average Cost of Capital. Assume that the current risk-free rate of interest is 3.5%, the market risk premium is 5%, and the corporate tax rate is 21%. Ø  Debt: •       Total book value: $10 million •       Total market value: $12 million •       Coupon rate: 6% •       Yield to Maturity: 5% Ø  Common Stock: •       Total book value: $15 million •       Total market value: $20 million •       Beta = 1.1 Ø  Preferred Stock: •       Total book value: $2 million •       Total market value: $2.5 million •       Price per share: $20 •       Dividend per share: $1.50 What is your firm’s Weighted Average Cost of Capital (input as a raw number, i.e. if your answer is 7.1

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Estimate your firm’s Weighted Average Cost of Capital. Assume that the current risk-free rate of interest is 3.5%, the market risk premium is 5%, and the corporate tax rate is 21%.

Ø  Debt:

•       Total book value: $10 million

•       Total market value: $12 million

•       Coupon rate: 6%

•       Yield to Maturity: 5%

Ø  Common Stock:

•       Total book value: $15 million

•       Total market value: $20 million

•       Beta = 1.1

Ø  Preferred Stock:

•       Total book value: $2 million

•       Total market value: $2.5 million

•       Price per share: $20

•       Dividend per share: $1.50

What is your firm’s Weighted Average Cost of Capital (input as a raw number, i.e. if your answer is 7.1%, input 7.1)?

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