Reference no: EM133012200
Question - Use the following financial data of Zonk Corporation to answer the next four questions.
Zonk's Financial Information
Book value of debt capital $8,000,000
Book value of preferred equity capital $2,000,000
Book value of common equity capital $6,000,000
Number of common shares outstanding 1,000,000
Per share price of common stock $10
Per share price of preferred stock $50
Pretax borrowing rate 6%
Annual preferred dividend per share $4
Common equity beta 1.2
Effective income tax rate 20%
Please note that I have calculated that Zonk's after-tax cost of debt is 4.8%
A. What is Zonk's cost of preferred stock?
B. What is Zonk's cost of common equity? Assume that the risk-free rate is 2% and the market risk premium is 7%.
C. What is Zonk's weighted-average cost of capital?