Prego Corp. has a Target Capital Structure

Target Capital Structure

7. Prego Corp. has a target capital structure of 30% debt, 60% common equity, and preferred stock of 10%. The yield to maturity on the company’s outstanding bonds is 9%, and its tax rate is 21%. The cost of preferred stock is 5%. Prego’s CFO estimates that the company’s WACC is 9.96%. What is Prego’s cost of equity?

  • 8. If the total capital structure is $90,000,000 and the debt to equity ratio is 50%, what is the dollar amount of debt?
  • 9. Referencing problem 7, what is the dollar amount of equity?
  • Look up the beta for Tapestry, Inc. What is it and what does it mean?
  • If you had to calculate the cost of equity for Twitter, Inc. which way would you have to do it?
  • If a firm’s WACC is 8.00%, what does this mean to the firm?

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