The target capital structure for Millennium Corporation is 50 percent common stock, 5 percent preferred stock, and 45 percent debt. Its cost of equity is 15 percent, the cost of preferred stock is 6 percent, and the cost of debt is 8 percent. The relevant tax rate is 35 percent. a) What is Millennium's WACC? – b) The company president has approached you about its capital structure. He wants to know why the company doesn't use more preferred stock financing because it costs less than debt. What would you tell the president? –
The target capital structure for Millennium Corporation is 50 percent common stock, 5 percent preferred stock, and 45 percent debt. Its cost of equity is 15 percent, the cost of preferred stock is 6 percent, and the cost of debt is 8 percent. The relevant tax rate is 35 percent. a) What is Millennium's WACC? – b) The company president has approached you about its capital structure. He wants to know why the company doesn't use more preferred stock financing because it costs less than debt. What would you tell the president? –
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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Transcribed Image Text:The target capital structure for Millennium Corporation is 50 percent common stock, 5
percent preferred stock, and 45 percent debt. Its cost of equity is 15 percent, the cost of
preferred stock is 6 percent, and the cost of debt is 8 percent. The relevant tax rate is 35
percent.
a) What is Millennium's WACC? –
b) The company president has approached you about its capital structure. He wants to
know why the company doesn’t use more preferred stock financing because it costs
less than debt. What would you tell the president? –
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