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Â?¢ The Firm has the following capital structure: (a) $100,000 in Debt, (b) $200,000 in Equity, and $50,000 in Preferred Stock.
â?¢ Financial analysts have gathered the following information about the firmâ??s common stock: (a) the dividend that was just paid was $2.00, (b) the return on the market is estimated to be 10%, (c) the risk free rate of return is estimated to be 3%, (d) the firmâ??s beta is 1.2, (e) the price of the firmâ??s stock is $30, and (f) the firmâ??s growth rate is estimated at 5%. I want to be sure that you can calculate the cost of a firmâ??s equity capital using both the CAPM and the Dividend Discount Model. Please provide your estimate for the firmâ??s cost of equity capital using both methods and select the greater of the two to use for the WACC estimate.
â?¢ The current bonds outstanding have the following characteristics: (a) 25-years until maturity, (b) they are currently priced at $800, and (c) they have coupon payments of $60.
â?¢ The companyâ??s preferred stock is paying dividends of $10.00 per share and the price of the preferred is $93.45.
â?¢ The companyâ??s tax rate is 35%.

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Solution Summary

The weighted average cost of capital is determined.

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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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