Phillips Equipment has 75,000 bonds outstanding that are selling at par or 1000. Bonds with similar characteristics are yielding 7.5 percent. The company also has 750,000 shares of 6 percent preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $64 a share. The common stock has a beta of 1.21 and sells for $44 a share. The U.S. Treasury bill is yielding 2.3 percent and the return on the market is 11.2 percent. The corporate tax rate is 34 percent.
What is the firm’s weighted average cost of capital?
Solution
We will solve this in 2 steps;
Step 1: What are the market values and Total Capital Structure for this company?
…Please click on the Icon below to purchase the FULL GRADED ANSWER at only $3