Firm approximate weighted average cost of capital

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Reference no: EM131513594

A firm is partly debt financed with 4 year bonds that all pay a 7% annual coupon. The total book value of the debt is $5 million with $1,000 par value per bond. The current yield to maturity on the bond is 11%. The firm also has preferred equity with book value of $1.5 million and a par value of $10 per share. The preferred stock currently sells for $12 per share and pays an annual dividend of $1. Assuming no taxes, what is the firm’s approximate weighted average cost of capital?

a) 6% b) 8% c) 10% d) 12% e) 14%

Reference no: EM131513594

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