As CFO of ACL you are trying to determine the firm's weighted average cost of capital...

As CFO of ACL you are trying to determine the firm's weighted average cost of capital (WACC). You have gathered the following information: The firm has 1,500 $1,100 face value bonds trading at par. The yield to maturity is 7.28%. The firm has 40,000 preferred shares trading at $50 per share and has a dividend yield of 5.14%. The book value of the preferred shares is $1,600,000. The firmhas 75,000 common shares of stock trading at $60 per share. The book value of common equity is $3,500,000. The firm beta is 0.95. The yield on short-term US treasuries is 2%, the historical market risk premium is 6%, and the firm has a marginal tax rate of 40%.

1. What is the firm's WACC?

2. What % of the firm is financed through common equity, in other words what is the weight of the common equityin the overall capital structure?

3. What is the market value of preferred equity?

4. What is the required return on equity (also known as the cost of equity)?

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Expert Solution

jeff jeffy answered 1 year ago

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