HBM, Inc has the following capital structure: Assets $ 350,000 Debt $ 87,500 Preferred stock 17,500 Common stock 245,000 The common stock is currently selling for $17 a share, pays a cash dividend of $0.80 per share, and is growing annually at 8 percent. The preferred stock pays a $9 cash dividend and currently sells for $100 a share. The debt pays interest of 7.0 percent annually, and the firm is in the 30 percent marginal tax bracket. What is the after-tax cost of debt? Round your answer to two decimal places. % What is the cost of preferred stock? Round your answer to two decimal places. % What is the cost of common stock? Assume that the current $0.80 dividend grows by 8 percent during the year. Round your answer to two decimal places. % What is the firm’s weighted-average cost of capital? Round your answer to two decimal places. %

HBM, Inc has the following capital structure: Assets $ 350,000 Debt $ 87,500 Preferred stock 17,500 Common stock 245,000 The common stock is currently selling for $17 a share, pays a cash dividend of $0.80 per share, and is growing annually at 8 percent. The preferred stock pays a $9 cash dividend and currently sells for $100 a share. The debt pays interest of 7.0 percent annually, and the firm is in the 30 percent marginal tax bracket. What is the after-tax cost of debt? Round your answer to two decimal places. % What is the cost of preferred stock? Round your answer to two decimal places. % What is the cost of common stock? Assume that the current $0.80 dividend grows by 8 percent during the year. Round your answer to two decimal places. % What is the firm’s weighted-average cost of capital? Round your answer to two decimal places. %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30%.Required: Complete the following tasks:a) Calculate the current price of the corporate bond?b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%?c) Calculate the current value of the preferred share if the average return of the shares in the same industry is 12%d) Calculate the current market value…
Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30%a) Calculate the current price of the corporate bond?b) Calculate the current price of the ordinary share if the average return of theshares in the same industry is 9%?c) Calculate the current value of the preferred share if the average return of theshares in the same industry is 12%?