The following information is available for Star Corporation: Debt: 12,000 bonds outstanding that are selling...
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The following information is available for Star Corporation: Debt: 12,000 bonds outstanding that are selling for 106 percent of par value 1,000; bonds with similar characteristics are yielding 4.5 percent, pretax. Common stock: 580,000 shares outstanding, selling for 47 per share; the beta is 1.12. Preferred stock: 40,000 shares of 3.2 percent preferred stock outstanding, par value 100 per share, currently selling for 68 per share. Market: 8 percent market risk premium and 3.4 percent risk-free rate. Assume the companys tax rate is 25 percent. Instructions:
1. Calculate the firms market value capital structure. (10 points)
2. Calculate the firms costs of common equity, preferred stock and debt. (10 points)
3. Calculate the weighted average cost of capital. (5 points)
4. If the company is considering an average risk project with an internal rate of return of 12%, should it accept the project? Explain. (5 points)
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