Reference no: EM133061709
Consider the following company,
|
Book Value of Debt
|
$50 million
|
|
YTM
|
10%
|
|
Coupon
|
7%
|
|
Coupon Payments
|
semi-annually
|
|
Years
|
20
|
|
Corporate Tax Rate
|
33%
|
|
# of Preferred Shares
|
2 million
|
|
Price of Preferred Share
|
$25
|
|
Dividend per Preferred Shares
|
$1.33
|
|
# of Common Shares
|
9.5 million
|
|
Price of Common Share
|
$19
|
|
β of Common Stock
|
1.3
|
|
Risk-Free Rate
|
4%
|
|
Market Return
|
10%
|
a. What is the market value of the debt? Enter your answer in terms of millions and rounded to 2 DECIMAL PLACES.
Enter your response below.
Correct response: 37.13±0.03 million
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b. What is the rate of return on the preferred stock? Enter you answer as a percentage and rounded to 2 DECIMAL PLACES. Do not include the percentage sign in your answers.
Enter your response below.
Correct response: 5.32±0.01%
c. What is the market value of the preferred stock? Enter your answer in terms of millions.
Enter your response below.
Correct response: 50±0.01 million
d. What is the rate of return of the equity? Enter your answer as a percentage. Do not include the percentage sign in your answers.
Enter your response below.
Click "Verify" to proceed to the next part of the question.