Blossom Corporation is financed with debt, preferred equity, and common equity with market values of $22...
Blossom Corporation is financed with debt, preferred equity, and common equity with market values of $22 million, $14 million, and $33 million, respectively. The betas for the debt, preferred stock, and common stock are 0.2, 0.4, and 1.1, respectively. The risk-free rate is 3.99 percent, the market risk premium is 6.07 percent, and Blossom’s average and marginal tax rates are both 30 percent.
Homework Answers
WACC or cost of capital is given as equal to=(22*(3.99%+0.2*6.07%)*(1-30%)+14*(3.99%+0.4*6.07%)+33*(3.99%+1.1*6.07%))/(22+14+33)=7.5653%
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Blossom Corporation is financed with debt, preferred equity, and
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