You are given the following information concerning Parrothead Enterprises: Debt Common stock: Preferred stock: Market: 9,400 7.2 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 108.25. These bonds have a par value of $2,000 and pay interest semiannually. 325,000 shares of common stock selling for $66.50 per share. The stock has a beta of 1.10 and will pay a dividend of $4.70 next year. The dividend is expected to grow by 5.5 percent per year indefinitely. 10,000 shares of 4.75 percent preferred stock selling at $96.00 per share. 10.5 percent expected return, a risk-free rate of 4.60 percent, and a 25 percent tax rate. What is the firm's cost of each form of financing? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e. Answer is complete but not entirely correct. Aftertax cost of debt Cost of preferred stock Cost of equity 0.05 % 4.60% 4.95 %
You are given the following information concerning Parrothead Enterprises: Debt Common stock: Preferred stock: Market: 9,400 7.2 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 108.25. These bonds have a par value of $2,000 and pay interest semiannually. 325,000 shares of common stock selling for $66.50 per share. The stock has a beta of 1.10 and will pay a dividend of $4.70 next year. The dividend is expected to grow by 5.5 percent per year indefinitely. 10,000 shares of 4.75 percent preferred stock selling at $96.00 per share. 10.5 percent expected return, a risk-free rate of 4.60 percent, and a 25 percent tax rate. What is the firm's cost of each form of financing? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e. Answer is complete but not entirely correct. Aftertax cost of debt Cost of preferred stock Cost of equity 0.05 % 4.60% 4.95 %
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:You are given the following information concerning Parrothead Enterprises:
Debt
Common stock:
Preferred stock:
Market:
9,400 7.2 percent coupon bonds outstanding, with 24 years to maturity and a
quoted price of 108.25. These bonds have a par value of $2,000 and pay
interest semiannually.
325,000 shares of common stock selling for $66.50 per share. The stock has a
beta of 1.10 and will pay a dividend of $4.70 next year. The dividend is
expected to grow by 5.5 percent per year indefinitely.
10,000 shares of 4.75 percent preferred stock selling at $96.00 per share.
10.5 percent expected return, a risk-free rate of 4.60 percent, and a 25
percent tax rate.
What is the firm's cost of each form of financing?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.
Answer is complete but not entirely correct.
Aftertax cost of debt
Cost of preferred stock
Cost of equity
0.05 %
4.60%
4.95 %
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