Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. hanover inc. has a target capital structure consis

Hanover Inc. has a target capital structure consisting of 30 percent debt, 10 percent preferred...

90.2K

Verified Solution

Question

Accounting

image
Hanover Inc. has a target capital structure consisting of 30 percent debt, 10 percent preferred stock, and 60 percent common equity. Its bonds have a maturity of $1,000. a 10 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend, but flotation costs of 5 percent would be incurred. Hanover's beta is 1.2, the risk-free rate is 8 percent, and the market risk premium is 5 percent. Hanover is a constant growth firm that just paid a dividend of $2.50, sells for $26.00 per share, and has a growth rate of 9 percent. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to find r_s. Flotation costs on new common stock total 10 percent and the firm's marginal tax rate is 40 percent What is Hanover's cost of retained earnings using the CAPM approach

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students