Estimate gamma cost of capital

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Reference no: EM131914995

Gamma Corporation has outstanding bonds with a coupon rate of 42% and a current yield of48%. The estimated cost on their preferred stock is 5.4%. It is estimated that the firm will need to have a return of at least 6.6% on any retained earnings that they use for capital investment. If the firm's capital consists of $4.5 million in bonds, $500,000 in preferred stock and $16 million in retained earnings, estimate Gamma's cost of capital. Assume that the firm's tax rate is 30%. Show your work.

Reference no: EM131914995

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