Question

Details are in photograph. Also, pre-tax cost of debt is 6.5%. Existing debt issues three years ago with a coupon rate of 6%. The firm just issued new debt at par with a coupon rate of 6.5%.

GHI Company has 4 million shares outstanding and 3 million preferred shares outstanding, and its equity has a total book value of \$65 million. It's debt has a market value of \$35 million. If GHI Company's common and preferred shares are priced at \$24 and \$31.70, respectively, what is the market value of GHI Company's assets?

Image transcriptions

E coursehero.com Prev. Clues. Share Price = S 24 Expected Dividend = \$ 1.5 Growth rate =4.9% Calculation of cost of Equity Let Cost of Capital be &quot;c&quot; Share Price = Expected Dividend I (Cost of capital - growth rate) 24 = 1.5 I (I: - 0.049] 24 c - 1.176 = 1.5 24 c = 2.676 c = 0.1115 or 11.15% Cost of Equity = 11.15% Current Clues. Fixed Dividend = 5 2.15 Current Stock Price = S 31.7 Cost of Preferred Stock = Dividend I Current Stock Price = 2.15 I 31.7 = 0.0678 or 6.78% Cost of Preferred Stock = 6.78%