Hankins Corporation has 8.4 million shares of common stock
outstanding, 590,000 shares of 7.4 percent preferred stock
outstanding, and 184,000 of 8.6 percent semiannual bonds
outstanding, par value $1,000 each. The common stock currently
sells for $64.90 per share and has a beta of 1.29, the preferred
stock currently sells for $107.10 per share, and the bonds have 13
years to maturity and sell for 91.5 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.
a. 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 | |
b. 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
%
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