Determine the cost of capital

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The Floyd Company has employed you to determine its weighted average cost of capital. The net income is projected to be $504,545 during the coming year. The marginal tax rate is 40%. Debt: Floyd has 3,000 7 percent coupon bonds outstanding, with 20 years to maturity, and a quoted price of 105. The bonds pay the coupons on a semi-annual basis. Preferred: Floyd has 20,000 shares of preferred stock. The preferred dividend is 2.50 and the current price is $50 per share. Common Equity: Floyd has 50,000 shares of common stock selling for $35 per share. The firm’s beta is 1.5 Market: The expected return on the market is 14% and the risk free rate is 4 percent. Determine the cost of capital.

Reference no: EM13944472

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