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Unformatted text preview: of debt (K D ) of 6 percent, 10% preferred stock at a cost of preferred (K P ) of 8 percent, and 60% stock, and that the firm’s tax rate is 40%. Also assume that the firm’s weighted average cost of capital is equal to 9.572 percent. Based on this information, determine the firm’s cost of common stock (K S ). A. 12.49% B. 11.83% C. 12.16% D. 11.50% E. 12.82% 25. Assume that an analyst has collected the following information about your company: • The company’s capital structure consists entirely of debt and equity and the debt/equity ratio is 2/3. • The yield to maturity on the company’s debt is 6 percent. • The company pays out all of its earnings as dividends (retention rate of zero) and the company’s year-end dividend (D 1 ) is forecasted to be $0.75 a share. • The company expects that its dividend will grow at a constant rate of 6 percent a year. • The company’s stock price is $25....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08
- Cost Of Capital