1. Calculate the cost of capital for the following company. The outstanding bonds have a...
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1. Calculate the cost of capital for the following company. The outstanding bonds have a 6% coupon and a 5.2% yield to maturity. The appropriate tax rate is 20%. The preferred stock carries a $3.50 dividend and is priced at $45 per share. The expected risk-free rate of return is 4.5% and the market risk premium is 7%. The common stock has a beta of 1.6. If they plan to use 32% debt financing, 3% preferred financing, and 65% common stock financing, what is the weighted average cost of capital? 3. A company buys $3 million in equipment for a new project. The equipment had $50,000 in installation and transportation. The project required $250,000 in additional inventories and $50,000 in additional accounts payable. What is the initial investment of the project?
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