You work for a firm with an issue of 40,000 bonds outstanding and 5,000,000 of market value in preferred stock that sells to yield 6%.
What is the value of the preferred stock if it pays a $5 dividend? The common stock has a market value of $50 per share with 100,000,000 shares outstanding. If the growth rate is 6% per annum and the earnings are $ 4 per share.
What is the required rate of return of the common stock?
Problem 5 (please answer this question): Assume the capital structure as in the above. What is the weighted average cost of capital if the maturity of the bond was 5 years and the coupon rate was 6%.