Explain the signalling theory of capital structure

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Explain the Signalling Theory of capital structure.

Surf Rider Inc. has 5,000 bonds outstanding with a 6% annual coupon rate, 10 years to maturity, a $1,000 face value, and a market quote of 220%. The company’s 50,000 shares of preferred stock pay a $6 annual dividend, and sell for $120 per share. The company’s 500,000 shares of common stock sell for $20 per share and have a beta of 1.2. The risk free rate is 6%, and the market risk premium is 9%. Assuming a 40% tax rate, what is the company’s WACC?

Reference no: EM13769380

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