Consider the following information for HCB, Inc. (in millions, except for per share items)

Financial Statement Information:

Sales $1,000

Net Income $50

Total Assets $2,000

Shareholder equity $750

Tax rate 40.0%

Bond Issue: 1.5 million bonds that are $1,000 par value 20-year 5.0% coupon bonds with semiannual payments with a yield to maturity of 7.0%.

100.0 million shares of stock outstanding

Market price per share $20.00

2.0 million shares of $8.00 per share dividend preferred stock

Market price per share of preferred stock $225.00

Percentage flotation costs per share for prefered stock 4.0%

HSB's stock's beta 1.3

Risk free rate 3.0%

Market risk premium 6.5%

Recent dividend on common stock $2.00 per share

Expected growth rate in common stock dividends 6.0%.

Calculate the percentage of debt in HSB's market value capital structure.

a.         26.00%

b.         26.98%

c.         29.25%

d.         32.50%

e.         36.73%                       

Calculate the DCF (dividend growth model) required return on HSB common stock.              

a.         10.60%

b.         14.94%

c.         16.60%

d.         16.77%

e.         17.10%                       

Calculate the required return on HSB preferred stock.     

a.         3.52%

b.         3.70%

c.         3.89%

d.         4.07%

e.         4.26%