Cost of Capital

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Question

The Imaginary Products Co. currently has debt with a market value of $225 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $900.37 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $15. The preferred shares pay an annual dividend of $1.20. Imaginary also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 8 percent per year forever. If Imaginary is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital for !1. Debt, 2.Preferred equity, and 3. Common equity ( Round intermediate calculations to 4 decimal places, and final answer to 2 decimal places.) Jan 16 2014 02:47 PM

 

Solution ID:608971 | This paper was updated on 26-Nov-2015

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