1. Prego Corp. has a target capital structure of 30% debt, 60% common equity, and preferred stock of 10%. The yield to maturity on the company’s outstanding bonds is 9%, and its tax rate is 21%. The cost of preferred stock is 5%. Prego’s CFO estimates that the company’s WACC is 9.96%. What is Prego’s cost of equity?
2. If the total capital structure is $90,000,000 and the debt to equity ratio is 50%, what is the dollar amount of debt?
3. Referencing problem 7, what is the dollar amount of equity?
4. Look up the beta for Tapestry, Inc. What is it and what does it mean?
5. If you had to calculate the cost of equity for Twitter, Inc. which way would you have to do it?
6. If a firm’s WACC is 8.00%, what does this mean to the firm?