1. Use the following information to calculate the firm’s weighted average cost of capital:
The dividend for preferred shares is $5, and the current price for preferred stock is $75.
The rate of return on long-term debt is 6%, the rate of return on short-term debt is 5%, and the marginal tax rate is 35%.
The market risk premium is 5%, the risk-free rate is 3%, and the firm has a beta of 0.9.
The firm’s capital structure is as follows: long-term debt is 25%, short-term debt is 4%, preferred stock is 2%, and common stock is 69%.
2. A bond with a $1,000 face value and a coupon rate of 7.00% has 30 years left until maturity. The bond makes semi-annual coupon payments and the yield to maturity is 9.00%, compounded semi-annually. What will the bond sell for (rounded to the nearest dollar)?
A. $794
B. $814
C. $839
D. $1,000
E. $1,248