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What are the capital structure weights

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Question: ABC Corp. has 10 million shares of common stock outstanding. The common stock currently sells for $65 per share and has a beta of 0.75. The market risk premium is 8 percent and the risk-free rate is 3 percent. The company has 2 million shares of preferred stock outstanding. The preferred stock currently sells for $80 per share and pays 4 percent dividend for each $100 face value. The company also has 1 million semiannual bonds outstanding with a 6% coupon interest rate and par value $1,000 each. The bonds have 20 years to maturity and sell for 115 percent of the par. The company's average tax rate is 35 percent. Answer the following questions.

(1) Compute the cost of common equity (RE), the preferred stock (RP), and the pre-tax cost of bond (RD)?

(2) What are the capital structure weights (WE, WP, and WD)?

Reference no: EM131456302

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