The Crane Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,445.45 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $17 per share. The preferred shares pay an annual dividend of $1.20. Crane also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 4 percent per year forever. If Crane is subject to a 40 percent marginal tax rate, then what is the firm’s weighted average cost of capital?
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Calculate the weights for debt, common equity, and preferred equity. (Round intermediate calculations and final answers to 4 decimal places, e.g. 1.2514.)
| Debt | ___ | ||
| Preferred equity | ___ | ||
| Common equity | ___ |
Calculate the yield to maturity of the debt. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
| Yield to maturity of the debt | ____ | % |
