HBM, Inc has the following capital structure: Assets $ 450,000 Debt $ 112,500 Preferred stock 45,000...
HBM, Inc has the following capital structure:
| Assets | $ | 450,000 | Debt | $ | 112,500 | |
| Preferred stock | 45,000 | |||||
| Common stock | 292,500 |
The common stock is currently selling for $15 a share, pays a cash dividend of $0.90 per share, and is growing annually at 3 percent. The preferred stock pays a $10 cash dividend and currently sells for $96 a share. The debt pays interest of 7.0 percent annually, and the firm is in the 30 percent marginal tax bracket.
a) What is the after-tax cost of debt? Round your answer to two decimal places.
_____ %
b) What is the cost of preferred stock? Round your answer to two decimal places.
_______%
c) What is the cost of common stock? Assume that the current $0.90 dividend grows by 3 percent during the year. Round your answer to two decimal places.
________%
d) What is the firm’s weighted-average cost of capital? Round your answer to two decimal places.
______ %
Homework Answers
a) after tax cost of debt = 7% * 0.70 = 4.90%
b) cost of preferred stock = 10/96 = 10.42%
c) cost of common stock = 0.90*1.03/15 + 3% = 9.18%
d
| Amount | weight | cost | weight*cost | |
| equity | 292,500.00 | 0.6500 | 9.180% | 0.0597 |
| debt | 112,500.00 | 0.2500 | 4.900% | 0.0123 |
| pref stock | 45,000.00 | 0.1000 | 10.420% | 0.0104 |
WACC = 8.23%
Add Answer to:
HBM, Inc has the following capital structure:
Assets
$
450,000
Debt
$
112,500
Preferred stock
45,000...
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