16. What is the current total market value of the preferred stock? a. $500,000 b

Question

16. What is the current total market value of the preferred stock?

a. $500,000

b. $522,500

c. $550,000

d. Cannot be determined from the information provided

e. None of the answers provided is correct

Answer the following questions (15 through 18) for Teara, Ine. If we accept the following balance sheet and costs of capital for Teara, Inc., a medical technology firm, what are the weighted costs for each component of the capital structure and what is the after-tax weighted average cost of capital at market value for the firm? Round to nearest decimals as follows: i.e. .0146-. 1.5%, .0164-1.6% Cash Accounts Receivable Inventory Net Plant, Property and Equipment S 5,000 7,000 903,000 4,000,000 Total Assets $4,915,000 Accounts Payable S 4,000 9,000 1000,000 S 1,013,000 Accrued Wages Bonds Total Debt Preferred Stock (5%) Common Stock Retained Earnings s 500,000 1,102,000 2,300,000 $ 3,902,000 Total Equity Total Debt and Equity $4,915,000 1,000 bonds were issued and are currently selling at 120. The 5,000 shares of $100 Par Value Preferred Stock is currently selling at $110 per share. The 1,102,000 shares of Common Stock are currently selling at $25.00 per share. Market values and book or historical values are thus not the same. The after tax costs of capital for the firm are as follows: Cost of Bonds-6% Cost of Preferred Stocks: 5.5% Cost ofCommon Stock-12.8% Cost of Retained Earnings = 12.0%

Explanation / Answer

Option C

Current Market value of prferred stock=number of preferred shares*preference share price=5000*110=550000

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