QUESTION 4
PIE Corporation has 8.75 million shares of common stock outstanding, 215,000 shares of RM6 annual dividend preferred stock outstanding, and 105,000 of 7.5% semi–annual bond outstanding. The common stock currently sells for RM34 per share and has a beta of 1.5, the preferred stock currently sells for RM91 per share, and the bonds have 15 years to maturity and sell for 93% of par. The market risk premium is 8.5%, T–bills are yielding 5%, and the corporate tax rate is 35%. Calculate the following:
(a) Firm’s market value capital structure.
(b) Cost of equity.
(c) Cost of preferred stock.
(d) Cost of debt.
(e) Weighted Average Cost of Capital (WACC).
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