Calculate debt, equity and preffered stock weights

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Reference no: EM133491913

Case: ABC Company currently have bonds outstanding which trade at $106, have a coupon rate of 7% paid semi-annually and mature in 12 years. Long term bonds issued would be sold at par. Assume issuance costs are ineligible. The cost of short-term debt is 4% and is not expected to change next year. Short-term debt is used to finance permanent working capital and remains on the balance sheet. The preferred stock has a fixed rate of 6%, and par value of $25 per share. The current market value is $29 per share. New preferred stock would be issued at their par value. Flotation costs are estimated at 4%.

ABC Company has 500,000 common shares outstanding with a market value of $40 per share. The upcoming dividend is expected to be $2.2 and dividend growth rate is expected to be3%. ABC Company has a beta of 0.90 and the current yield on long-term government bonds is 3.5%. The yield on the market portfolio is expected to be 10%. Assume that company's common equity is from internal sources. Tax rate is 28%.

Question: CALCULATE DEBT, EQUITY AND PREFFERED STOCK WEIGHTS USED IN CALCULATING ITS WEIGHTED AVERAGE COST OF CAPITAL

Reference no: EM133491913

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