MV Pfd Corporation has debt with a coupon rate of 5% and a yield to maturity of 7%, a cost of equity of 15% and a cost of preferred stock of 10%. Its debt has a market value of $130 million and a book value of $150 million. The common equity has a book value of $80 million and the preferred stock has a book value of $60 million. The preferred stock is currently trading at a 25% premium over its book value per share, while the common stock trades at $20 per share, with 8 million shares outstanding. The tax rate is 30%. What is this firm’s value of preferred stock, P(for use in the weights)? A. $150 million B. $75 million C. $80 million D. $160 million E. $180 million F. $130 million G. $15 million H. $60 million I. $140 million
MV Pfd Corporation has debt with a coupon rate of 5% and a yield to maturity of 7%, a cost of equity of 15% and a cost of preferred stock of 10%. Its debt has a market value of $130 million and a book value of $150 million. The common equity has a book value of $80 million and the preferred stock has a book value of $60 million. The preferred stock is currently trading at a 25% premium over its book value per share, while the common stock trades at $20 per share, with 8 million shares outstanding. The tax rate is 30%. What is this firm’s value of preferred stock, P(for use in the weights)? A. $150 million B. $75 million C. $80 million D. $160 million E. $180 million F. $130 million G. $15 million H. $60 million I. $140 million
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
Section: Chapter Questions
Problem 1PS
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MV Pfd Corporation has debt with a coupon rate of 5% and a yield to maturity of 7%, a cost of equity of 15% and a cost of preferred stock of 10%. Its debt has a market value of $130 million and a book value of $150 million. The common equity has a book value of $80 million and the preferred stock has a book value of $60 million. The preferred stock is currently trading at a 25% premium over its book value per share, while the common stock trades at $20 per share, with 8 million shares outstanding. The tax rate is 30%.
What is this firm’s value of preferred stock, P(for use in the weights)?
$150 million
$75 million
$80 million
$160 million
$180 million
$130 million
$15 million
$60 million
$140 million
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