Bubba Equipment has the following financial information:
1) 50,000 bonds outstanding with a 20 year maturity and 4 % annual coupon, selling for $950
2) 500,000 shares of 5 percent preferred stock. $100 par value per share, selling for $80 per share
3) 2.0 million shares of common stock outstanding. beta of 1.20. sells for $50 a share. recen annual dividend was $3 and projected growh rate is 6%
(the us treasury bill is yielding 3 percent)
(return on the market is 10 percent)
(corporate tax rate is 30 percent)
take everything to 4 decimal places
1. What is the cost of preferred?
2. What is the cost of equity using the CAPM?