Question

Question 6 0.4/1 View Policies Show Attempt History Current Attempt in Progress The Cullumber Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,429.26 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $20 per share. The preferred shares pay an annual dividend of $1.20. Cullumber also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 6 percent per year forever. If Cullumber is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital? Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) x Your answer is incorrect. Calculate the weights for debt, common equity, and preferred equity. (Round intermediate calculations and final answers to 4 decimal places, e.g. 1.2514.) Debt 300000000 Preferred equity 40000000 Common equity 280000000 e Textbook and Media

Answer 1

Market Value Market value/Total value Weights 300000000 300000000/620000000 40000000 40000000/620000000 280000000 280000000/620000000 Debt 0.4839 Preferred Shares 2000000*20 0.0645 14000000 20 Common Stock 0.4516 620000000 1