Consider the following information for HCB, Inc. (in millions, except for per share items)
Financial Statement Information:
Sales $1,000
Net Income $50
Total Assets $2,000
Shareholder equity $750
Tax rate 40.0%
Bond Issue: 1.5 million bonds that are $1,000 par value 20-year 5.0% coupon bonds with semiannual payments with a yield to maturity of 7.0%.
100.0 million shares of stock outstanding
Market price per share $20.00
2.0 million shares of $8.00 per share dividend preferred stock
Market price per share of preferred stock $225.00
Percentage flotation costs per share for prefered stock 4.0%
HSB's stock's beta 1.3
Risk free rate 3.0%
Market risk premium 6.5%
Recent dividend on common stock $2.00 per share
Expected growth rate in common stock dividends 6.0%.
Calculate the percentage of debt in HSB's market value capital structure.
a. 26.00%
b. 26.98%
c. 29.25%
d. 32.50%
e. 36.73%
Calculate the DCF (dividend growth model) required return on HSB common stock.
a. 10.60%
b. 14.94%
c. 16.60%
d. 16.77%
e. 17.10%
Calculate the required return on HSB preferred stock.
a. 3.52%
b. 3.70%
c. 3.89%
d. 4.07%
e. 4.26%