1.) What is the market interest rate on Mikes debt and its component cost of debt?
2. What is the firm's cost of preferred stock?
PROBLEMPref. Dividend$10.00 Pref. Price$113.10 Flotation costs$2.00 rps =Pref. Dividend÷(Pref. Price - Flotation Costs)rps =$10.00 ÷$113.10 $2.00 rps =9.00%what is Mike’s estimated cost of equity?The CAPM Approach1) Mike does not plan to issue new shares of common stock. Using the CAPM approach, rs= risk-free rate + (Market risk premium) (Beta)rs= rrf+ (RPm) bi (Note: RPM is the expected return on the market