Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:The Crane Products Co. currently has debt with a market value of $275 million outstanding. The
debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15
years and are currently priced at $1,418.61 per bond. The firm also has an issue of 2 million
preferred shares outstanding with a market price of $11 per share. The preferred shares pay an
annual dividend of $1.20. Crane also has 14 million shares of common stock outstanding with a price
of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and
that dividend is expected to increase by 5 percent per year forever. If Crane is subject to a 40
percent marginal tax rate, then what is the firm's weighted average cost of capital?
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Transcribed Image Text:Calculate the cost of debt. (Round intermediate calculations to 4 decimal places, eg. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
Cost of debt
%
Calculate the cost of preferred equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
Cost of preferred equity
%
Calculate the cost of common equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to O decimal places, e.g. 15%.)
Cost of common equity
What is the firm's weighted average cost of capital? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%,.)
WACC
%
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