Final Exam Fall Started Dec 7 at 8:22pm Quiz Instructions Show instructions 1 pt

Question

Final Exam Fall Started Dec 7 at 8:22pm Quiz Instructions Show instructions 1 pts Question 23 Jake the Dog Inc. is investing in a new portable iguana killing machine that will cost machine has a useful life The IRS MACRS schedule for the six years is: (1) of 6 years and falls into the 5-year property class for the depreciation purposes. 20%, (2) 32%, (3) 19.2%, (4) 11.52% (5) 11S2%, t r of savings for Jake and can be sold for $50.000 at the end of the 5.76%. It will generate $5o,000 per yea 6-year period. Jake's corporate tax rate is 34%. In addition, Jake has 2000 outstanding 9% annual coupon bonds with a $1000 par value, 20 years to maturity and a price of $1085. Jake also has 60,000 shares common stock outstanding that is selling for $45 per share. This stock has a beta of 2.45 (its Jake! he is a risky dog-duden, the expected market return is 12% and the risk-free rate is 5%. Finally, Jake has 36,000 shares preferred stock outstanding that pays a 5.5% dividend and sells for $40 per share, what is the cost of preferred capital? @ 13.25% 0 13.75% o 9.25% O 12.75% 14.75% Honorlock is sharing your screen with Stop sharing

Explanation / Answer

Cost of preferred stock (Rp) Annual dividend÷Stock price Here, Annual dividend $                                                  5.50 Preferred stock price $                                               40.00 Cost of preferred stock (Rp) 13.75% $5.50÷$40

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