Suppose Westerfield Co. has the following financial information: Debt: 900,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk-free rate is 5%, and the tax rate is 21%. Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)

Suppose Westerfield Co. has the following financial information: Debt: 900,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk-free rate is 5%, and the tax rate is 21%. Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles

Section: Chapter Questions

Problem 1P: Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually...

See similar textbooks

Similar questions

Suppose Westerfield Co. has the following financial information: Debt: 900, 000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk - free rate is 5%, and the tax rate is 21 %. Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)
Suppose Westerfield Co. has the following financial information: Debt: 900,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 85% of par and have 12 years to maturity. The coupon rate equals 7%, and the bonds make semiannual interest payments. Preferred stock: 600,000 shares of preferred stock outstanding; currently trading for $108 per share, paying a dividend of $9 annually. Common stock: 25,000,000 shares of common stock outstanding; currently trading for $185 per share. Beta equals 1.22. Market and firm information: The expected return on the market is 9%, the risk-free rate is 5%, and the tax rate is 21%. Calculate the weight of the common stock in the capital structure. (Enter percentages as decimals and round to 4 decimals)
You are given the following information on Parrothead Enterprises: Debt: 9,400 6.6 percent coupon bonds outstanding, with 21 years to maturity and a quoted price of 105. These bonds pay interest semiannually and have a par value of $1,000. Common stock: 245,000 shares of common stock selling for $64.90 per share. The stock has a beta of .94 and will pay a dividend of $3.10 next year. The dividend is expected to grow by 5.4 percent per year indefinitely. Preferred stock: 8,400 shares of 4.7 percent preferred stock selling at $94.40 per share. The par value is $100 per share. Market: 11.6 percent expected return, risk-free rate of 3.8 percent, and a 24 percent tax rate. Calculate the company's WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
You are given the following information on Parrothead Enterprises: Debt: 8,500 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 106.75. These bonds pay interest semiannually and have a par value of $2,000. Common stock: 280,000 shares of common stock selling for $65.60 per share. The stock has a beta of 1.06 and will pay a dividend of $3.80 next year. The dividend is expected to grow by 5.1 percent per year indefinitely. Preferred stock: 9,100 shares of 4.55 percent preferred stock selling at $95.10 per share. The par value is $100 per share. Market: 10.9 percent expected return, risk-free rate of 4.15 percent, and a 21 percent tax rate. Calculate the company's WACC.
You are given the following information concerning Parrothead Enterprises: Debt: 9,200 6.4 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 104.50. These bonds have a par value of $1,000 and pay interest semiannually. Common stock: 235,000 shares of common stock selling for $64.70 per share. The stock has a beta of .92 and will pay a dividend of $2.90 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. Preferred stock: 8,200 shares of 4.60 percent preferred stock selling at $94.20 per share. Market: 11.8 percent expected return, a risk-free rate of 3.70 percent, and a 22 percent tax rate. 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 % Calculate the WACC for the company. (Do not round intermediate calculations and enter your answer as a…
You are given the following information concerning Parrothead Enterprises: Debt: 9,300 6.5 percent coupon bonds outstanding, with 22 years to maturity and a quoted price of 104.75. These bonds have a par value of $1,000 and pay interest semiannually. Common stock: 240,000 shares of common stock selling for $64.80 per share. The stock has a beta of .93 and will pay a dividend of $3.00 next year. The dividend is expected to grow by 5.3 percent per year indefinitely. Preferred stock: 8,300 shares of 4.65 percent preferred stock selling at $94.30 per share. Market: 11.7 percent expected return, a risk-free rate of 3.75 percent, and a 23 percent tax rate. 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.)
You are given the following information on Parrothead Enterprises: Debt: 9,200 7.3 percent coupon bonds outstanding, with 22 years to maturity and a quoted price of 108.5. These bonds pay interest semiannually and have a par value of $2,000. Common stock: 315,000 shares of common stock selling for $66.30 per share. The stock has a beta of 1.08 and will pay a dividend of $4.50 next year. The dividend is expected to grow by 5.3 percent per year indefinitely. Preferred stock: 9,800 shares of 4.65 percent preferred stock selling at $95.80 per share. The par value is $100 per share. Market: 10.2 percent expected return, risk - free rate of 4.5 percent, and a 23 percent tax rate. Calculate the company's WACC.
Consider the following information for Evenflow Power Co., Debt: 2,500 bonds that each year pay 5.5 percent of par value as an annual coupon, have a $1,000 par value, and a yield to maturity of 5.25 percent compounded annually. The bonds have 19 years to maturity and currently sell for 103 percent of par (face) value. 57,500 shares outstanding, selling for $59 per share; the Common stock: beta is 1.17. Preferred stock: 8,500 preferred shares that pay a dividend of 5 percent annually on $100 par value, and currently sell for $106 per share. 6.5 percent market risk premium and 5 percent risk-free Market: rate. Assume the company's tax rate is 32 percent. Note: Face value is sometimes used interchangeably with par value. Preferred shares almost always pay a constant dividend, but the dividend is usually quoted as a percent of par value (just like coupons and bonds). So as an example, a 7% preferred dividend on a $100 par value means the annual dividend payment is $7. Required: Find the…
You are given the following information on Parrothead Enterprises: Debt: 9,300 6.5 percent coupon bonds outstanding, with 22 years to maturity and a quoted price of 104.75. These bonds pay interest semiannually and have a par value of $1,000. Common stock: 240,000 shares of common stock selling for $64.80 per share. The stock has a beta of .93 and will pay a dividend of $3.00 next year. The dividend is expected to grow by 5.3 percent per year indefinitely. Preferred stock: 8,300 shares of 4.65 percent preferred stock selling at $94.30 per share. The par value is $100 per share. Market: 11.7 percent expected return, risk-free rate of 3.75 percent, and a 23 percent tax rate. Calculate the company's WACC. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
You are given the following information on Parrothead Enterprises: Debt: Common stock: Preferred stock: Market: 8,600 7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 107. These bonds pay interest semiannually and have a par value of $2,000. WACC 285,000 shares of common stock selling for $65.70 per share. The stock has a beta of 1.02 and will pay a dividend of $3.90 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. 9,200 shares of 4.6 percent preferred stock selling at $95.20 per share. The par value is $100 per share. 10.8 percent expected return, risk-free rate of 4.2 percent, and a 22 percent tax rate. Calculate the company's WACC. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. %
You are given the following information on Parrothead Enterprises: Debt: 9,500 7 percent coupon bonds outstanding, with 25 years to maturity and a quoted price of 105.25. These bonds pay interest semiannually and have a par value of $1,000. Common stock: 250,000 shares of common stock selling for $65.00 per share. The stock has a beta of .95 and will pay a dividend of $3.20 next year. The dividend is expected to grow by 5 percent per year indefinitely. Preferred stock: 8,500 shares of 4.5 percent preferred stock selling at $94.50 per share. The par value is $100 per share. Market: , 11.5 percent expected return, risk - free rate of 3.85 percent, and a 25 percent tax rate. Calculate the company's WACC. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g ., 32.16. WACC % You are given the following information on Parrothead Enterprises: Debt: Common stock: 9,500 7 percent coupon bonds outstanding, with 25 years to maturity and…
Consider the following information for Watson Power Co.: Debt: 4,500 7 percent coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 103 percent of par; the bonds make semiannual payments. Common stock: 108,000 shares outstanding, selling for $61 per share; the beta is 1.08. Preferred stock: 14,000 shares of 6.5 percent preferred stock outstanding, currently selling for $104 per share. Market: 9 percent market risk premium and 6 percent risk-free rate. Assume the company's tax rate is 34 percent. Find the WACC.