3. XTerra Adventures Enterprises plans to raise new financial capital by issuing a $100 par, 4%, convertible preferred stock. If a similar preferred stock is currently trading at $30 per share, what is the firm's estimated cost of preferred stock capital? a. 16.2% b. 14.5% c. 15.5% d. 13.3%
4. HTL Hospitality Services' outstanding debt has a yield to maturity of 7%. The firm's tax rate is 30%. What is HTL's effective cost of debt ? a. 7% b. 5.2% c.6.3% d. 4.9%
Solution to QUESTION-3
Cost of Preferred Stock Capital = [Annual Preferred Dividend per share / Current Market Price] x 100
= [($100 x 4%) / $30] x 100
= [$4 / $30] x 100
= 13.3%
Solution to QUESTION-4
Effective Cost of Debt = Bond’s Yield to Maturity x (1 – Tax Rate)
= 7% x (1 – 0.30)
= 7% x 0.70
= 4.9%
3. XTerra Adventures Enterprises plans to raise new financial capital by issuing a $100 par, 4%,...
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