Hankins Corporation has 7.9 million shares of common stock
outstanding, 540,000 shares of 7.4 percent preferred stock
outstanding, and 179,000 of 8.6 percent semiannual bonds
outstanding, par value $1,000 each. The common stock currently
sells for $64.40 per share and has a beta of 1.24, the preferred
stock has a par value of $100 and currently sells for $107.60 per
share, and the bonds have 13 years to maturity and sell for 94
percent of par. The market risk premium is 7 percent, T-bills are
yielding 5.7 percent, and the firm’s tax rate is 35 percent.
What is the firm's market value capital structure? (Do not
round intermediate calculations and round your answers to 4 decimal
places, e.g., 32.1616.)
Market value weight of debt | |
Market value weight of preferred stock | |
Market value weight of equity | |
What is the firm's cost of each form of financing? (Do not
round intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
Aftertax cost of debt | % |
Cost of preferred stock | % |
Cost of equity | % |
If the firm is evaluating a new investment project that has the
same risk as the firm’s typical project, what rate should the firm
use to discount the project’s cash flows? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Weighted average cost of capital
%
Calculation is shown below
Working is given below
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