The company x has the following capital structure in market, Ask an Expert

Finance

The Company X has the following capital structure in market value terms:

Debt $20.000.000

Preferred Stock $8.000.000

Common Stock (120.000 shares) $32.000.000

The company has a marginal tax rate of 20 percent. Company’s debt is currently yielding 20 percent. The firm pays $5 to preferred stock holders and market price of its preferred stock is $25. Expected dividend for the common stock holders is $15, where the current market price of the common stock is $100. The growth rate of dividends (for common stock holders) has been 10 percent and is expected to continue at the same rate.

a) Calculate after-tax cost of debt.

b) Calculate cost of preferred stock.

c) Calculate cost of equity capital.

d) Compute the firm’s; weighted average cost of capital.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93059536

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