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
icon
Related questions
Question
None
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 %
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 %
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 1 images

Blurred answer
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education