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Business, 15.04.2021 18:50 kyusra2008

Use the following information for the next several questions. A 30-year, $1000 par value bond with a 4% annual coupon bond sells for $900. Preferred stock pays $9.5 in dividends per year and has a selling price of $105. The risk-free rate (30 day t-bills) is 3%, the market risk premium is 6%, the stock's beta is 1.2, dividends are growing at 4% per year, the stock will pay $4 in dividends next year, the current stock price is $50, and the bond-equity risk premium is 6%. Assume a corporate tax rate of 20% and target weights of 40% debt, 20% preferred, 40% common equity. What is the cost of debt for this company

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