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Calculate the weight of debt in the capital structure

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Reference no: EM132758100

Suppose Jaffe Co. has the following financial information:

Debt:

Preferred stock:

Common stock: 75,000 bonds outstanding with a face value of $1,000.

The bonds currently trade at 94% of par and have 15 years to maturity. The coupon rate equals 4%, and the bonds make semiannual interest payments.

  • 400,000 shares of preferred stock outstanding; currently trading for $92 per share and it pays a dividend of $3.33 per share every year.
  • 2,500,000 shares of common stock outstanding; currently trading for $54 per share. Beta equals 1.15.

Market and firm information: The expected return on the market is 8%, the risk-free rate is 1%, the tax rate is 21%

Problem A) Calculate the weight of the common stock in the capital structure. (Enter percentages as decimals and round to 4 decimals)

Problem B) Calculate the weight of debt in the capital structure. (Enter percentages as decimals and round to 4 decimals)

Problem C) Calculate the before-tax cost of debt. (Enter percentages as decimals and round to 4 decimals)

Problem D) Calculate the after-tax cost of debt. (Enter percentages as decimals and round to 4 decimals)

Problem E) Calculate the cost of preferred stock. (Enter percentages as decimals and round to 4 decimals)

Problem F) Calculate the cost of common stock. (Enter percentages as decimals and round to 4 decimals)

Reference no: EM132758100

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