Question

Use the following data for the next 5 questions:

Debt	50,000 bonds with 5 % coupon rate, payable annually, 15 years to maturity, current quote is 105.
Common Stock	1,000,000 shares of common stock outstanding. The stock sells for a price of $65 per share and has a beta of 1.1
Preferred Stock	150,000 preferred shares outstanding, currently trading at $90 per share; with an annual dividend payment of $6.50
Market	The market risk premium is 7% and the risk free rate is 2.5%
Tax Rate	35%

The before tax cost of debt is:

		6.50 %
		6.85 %
		4.53 %
		5.91 %
		4.04 %

----

1. The after tax cost of debt is:

   		2.94 %
   		4.79 %
   		2.08 %
   		3.50 %
   		3.79 %

----

The company’s cost of preferred stock is:

		6.05 %
		7.06 %
		7.50 %
		8.40 %
		7.22 %

---

1. The company’s cost of common stock is:

   		8.50 %
   		9.42 %.
   		12.18 %
   		10.20 %
   		16.50 %

Answer 1