Pine Tree Farms Corporation (PTFC) has a target capital structure of 30% debt, 1
ID: 2641049 • Letter: P
Question
Pine Tree Farms Corporation (PTFC) has a target capital structure of 30% debt, 10% preferred stock, and 60% common equity. Currently PTFC has a capital structure of 75% debt, 10% preferred stock, and 15% common stock. The after tax cost of debt is 4%. The preferred stock has a par value of $100 per share, a $6 per share dividend, and a market price of $70 per share. The common stock of PTFC trades at $96 per share and has a projected dividend (D1) of $2.55. The stock price and dividend are expected to continue to grow at 7% per year for the foreseeable future.
What is PTFC
Explanation / Answer
1) The formula to calculate weighted average cost of capital [WACC] = [Weight of Equity * Cost of equity] + [Weight of Preferred Equity * Cost of Preferred Equity] + [Weight of debt * Cost of debt ( 1