Target capital structure 47 debt 8 preferred stock and 45


Match the Weighted Average Cost of Capital to each of the scenarios given for ABC Corporation. Target capital structure: 47% debt, 8% preferred stock and 45% common equity. Yield to maturity on bonds: 8.0%; Preferred stock dividend: $6.40 per year; current market price of preferred stock is $68.90. CAPM data for common equity: risk-free rate is 3.0%; market risk premium for the average stock is 8.0%; ABC has a beta of 1.13. ABC's marginal tax rate is 40%. Target capital structure: 51% debt, 5% preferred stock and 44% common equity. Yield to maturity on bonds: 5.2%; Preferred stock dividend: $7.04 per year; current market price of preferred stock is $69.54. CAPM data for common equity: risk-free rate is 4.9%; market risk premium for the average stock is 6.3%; ABC has a beta of 1.32. ABC's marginal tax rate is 40%. Target capital structure: 51% debt, 8% preferred stock and 41% common equity. Yield to maturity on bonds: 7.0%; Preferred stock dividend: $6.97 per year; current market price of preferred stock is $69.47. CAPM data for common equity: risk-free rate is 4.0%; market risk premium for the average stock is 4.1%; ABC has a beta of 2.22. ABC's marginal tax rate is 40%. Target capital structure: 52% debt, 6% preferred stock and 42% common equity. Yield to maturity on bonds: 7.1%; Preferred stock dividend: $7.22 per year; current market price of preferred stock is $69.72. CAPM data for common equity: risk-free rate is 3.9%; market risk premium for the average stock is 7.6%; ABC has a beta of 1.26. ABC's marginal tax rate is 40%. Target capital structure: 38% debt, 6% preferred stock and 56% common equity. Yield to maturity on bonds: 4.3%; Preferred stock dividend: $7.27 per year; current market price of preferred stock is $69.77. CAPM data for common equity: risk-free rate is 4.9%; market risk premium for the average stock is 9.7%; ABC has a beta of 0.89. ABC's marginal tax rate is 40% A. 8.50% B. 8.42% C. 7.91% D. 9.18% E. 8.32%.

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Financial Management: Target capital structure 47 debt 8 preferred stock and 45
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