Business
Business, 05.05.2020 08:56, chloe1107

A company has 10.1 million shares of common stock outstanding, 450,000 shares of 5 percent preferred stock outstanding, and 235,000 8.9 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $49 per share and has a beta of 1.55, the preferred stock currently sells for $99 per share, and the bonds have 15 years to maturity and sell for 116 percent of par. The market risk premium is 8.9 percent, T-bills are yielding 4 percent, and the company’s tax rate is 38 percent.
a. What is the firm's market value capital structure?
b. If the company is evaluating a new investment project that has the same risk as to the firm's typical project, what rate should the firm use to discount the project's cash flows?

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Answers: 2

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A company has 10.1 million shares of common stock outstanding, 450,000 shares of 5 percent preferred...

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