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Fair and Equitable has to determine its cost of capital
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September 15, 2020Of the many reasons discussed in your readings for making acquisitions the ratio
September 15, 2020Fair and Equitable has to determine its cost of capital using the following information:
The firm has $30000000 in corporate bonds currently selling at 97.5. The bonds mature in 9 years and have an annual coupon rate of 6.6% paid semiannually. F&E faces a 35% tax rate. This firm has 1500000 shares of preferred stock that pays a dividend of $0.80 per year and currently sells for $9.00 per share.
Common stock selling for $3.45 per share has just paid a dividend of $0.29 and is expected to grow by 4% forever. The firm has a beta of 1.3 and the risk free rate on treasury securities is 3%. The average return on the S&P500 is 10.54%.
Calculate the cost of capital for the firm. Fair and Equitable has 20 million common shares outstanding
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