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Forrest Corporation has 600,000 shares of common stock, 12,000 shares of preferred stock, and 7,000...

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Finance

  1. Forrest Corporation has 600,000 shares of common stock, 12,000 shares of preferred stock, and 7,000 bonds with 6 percent annual coupon (compounded semiannually) outstanding. The common stock currently sells for $20 per share and has a beta of $1.95. Preferred stocks pay a dividend of $6 per share and currently sell for $102 with a floatation cost of $2 per share. The bonds have par value of $1,000; 25 years to maturity and currently sell for 115.5 percent of par. The bonds floatation cost is 1% of the current market price. The expected return on market portfolio is 8 percent, T-bills are yielding 2 percent, and the tax rate is 35 percent. What is the firms market value capital structure? If Forrest is evaluating a new investment project that has the same risk as the firms typical project, what rate should the firm use to discount the projects cash flows?

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