Question: Problem 1: You work for a firm with an issue of 40,000 bonds outstanding and 5,000,000 of market value in preferred stock that sells to yield 6%.
1. What is the value of the preffered stock if it pays a $5 dividend?
2. The common stock has a market value of $50 per share with 100,000,000 shares outstanding. If the growth rate is 6% per annum and the earnings are $4 per share, what is the required rate of return of the common stock?
3. What is the total market value of the firm if the bonds sell for $975 each? $1075 per bond?
4. What is the weighted average cost of capital if the maturity of the bond was 5 years and the coupon rate was 6%.
Answer the question giving the complete results for each step.