Weight of debt-weight of preferred stock-weight of equity

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Reference no: EM13811711

Discount rate to use to evaluate the purchase of a new warehouse facility. You have determined the market value of the firm's capital structure as follows:

Source of Caital Market Value

Bonds $550,000

Preferred Stock $100,000

Common Stock $420,000

To finance the purchase, GBH will sell 20 year bonds with a $1,000 par value paying 7.5 percent per year (paid semi annually) , at the market price of $955. Preferred stock paying a $2.47 dividend can be sold for $34.68. Common stock for GBH is currently selling for $49.15 per share. The firm paid a $3.95 dividend last year and expects dividends to continue growing at a rate of 4.2 % per year into the indefinite future. The firm's marginal tax rate is 34 percent. What discount rate should you use to evaluate the warehouse project?

a) weight of debt?

b) weight of preferred stock?

c) weight of equity?

Reference no: EM13811711

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