1. HBM, Inc. has the following capital st
s the following capital structure:
Assets
$400,000
Debt
Preferred stock
Common stock
$140,000
20,000
240,000
The common stock is currently se
mon stock is currently selling for $15 a share, pays a cash dividend of
per share, and is growing annually at 6 percent. The preferred stock pays
y cash dividend and currently sells for $91 a share. The debt pays interest of
0.5 percent annually, and the firm is in the 30 percent marginal tax bracket.
a. What is the after-tax cost of debt?
b. What is the cost of preferred stock?
c. What is the cost of common stock?
d. What is the firm's weighted average cost of capital?