Using the information provided below, answer the questions that follow. Growth r

Question

Using the information provided below, answer the questions that follow. Growth rate of dividends & common stock share price = 4% Risk free rate of return = 5% Return on the market = 12% Tax bracket = 40% Dividend on common stock (past year) = $3 Dividend on preferred stock = $4 Price per share of common stock = $30 Price per share of preferred stock = $100 Beta = 1.3 Rate of Interest on Debt = 8% Assume that items in the balance sheet below are in the desired proportion. (The current capital structure is the target capital structure.) Assets $100,000,000 Long -term debt $45,000,000 Preferred stock $10,000,000 Common stock $30,000,000 Retained earnings $15,000,000 a.) What is this firm

Explanation / Answer

a) .08 * (1-.40)= .048 b) 4/100= .04 c) 3 *(1.04)/(r-.04)= 30 r= .144 d) .05 + 1.3(.12-.05)= .141 e) .45 * .048 +.10 *.04 +.45*.141= .08905 f) .45*.048 +.10 *.04 +.45*.144= ,0904

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