Phillips equipment has 80,000 bonds of outstanding that are selling at par. Bond

Question

Phillips equipment has 80,000 bonds of outstanding that are selling at par. Bonds with similar charactistics are yielding 6.75 percent which is equal to the coupon rate of the bonds. The face value of the bonds is 1000. The company also has 750000 shares of 7 percent preferred stock that pays $7 for a dividend and sells for $53 a share. The face value of the preferred stock is 100. The company has 2.5 million shares of common stock outstanding . The common stock has a beta of 1.34 and sells for $42 a share. The U S treasury bill is yielding 2.8 percent and the return on the market is 11.2 percent which indicates that the maket risk premium is 8.4 percent . The corporate tax rate is 38 percent what is the cost of common equity please answer asap A) 8.72 B) 10.56 C) 14.06 D) 18.75 E) 21.56

Explanation / Answer

Cost of equity is: Rf + betax(Rm-Rf) = 2.8 + 1.34 x(11.2 - 2.8) = 14.06%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---