Calculate the firm weighted average cost of capital

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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

Reference no: EM132040416

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