Compute the weighted average cost of capital of firm

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1. Preferred stock of Ford Motors pays a dividend of $7 each year and trades at a price of $23. What is the cost of preferred stock capital for Ford? Round to four decimal places. Give answer in decimal form without commas or dollar signs.

2. IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. Your estimate of the market risk premium is 6%. The risk-free rate of return is 5% and IBM has a beta of 1.2. What is IBM's cost of equity capital using the two methodologies, DGM and CAPM respectively?

3. A firm has a capital structure with $4 in equity and $1 of debt. The cost of equity capital is 0.17 and the pretax cost of debt is 0.09. If the marginal tax rate of the firm is 0.33 compute the weighted average cost of capital of the firm.

Round to four decimal places. Give answer in decimal form without commas or dollar signs.

Reference no: EM131348022

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