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Date Posted: 18:41:28 07/31/00 Mon
Author: Jeanel Carlson
Subject: Practice Final Exam #6, Fall '99

Prof. Fendler or anyone out there...

Problem 19 in the Practice Final Exam #6, I'm having trouble. I got KS by finding Do=Net Income x % of div/share outstanding ie.(8M)(.25)/ 1M= 2. Factoring in the growth rate I got D1/Po + G= 2.12/27 + .06. I got Po by taking 27M/1M ie. Equity/Shares outstanding.
Ks=.138
Kd= (7.5) (1-.40) (33M/60M)= 2.48
Kp=$2/$27= .074

The weights for the preferred stock I'm confused about. I know debt over assets is 33M/60M. And equity over assets 27M/60M. I'm not sure how the preferred portion is figured.

I'd apprecite if someone could let me know if I'm correct on the figures above and offer some insight on the pref stock weights.

Thanks!

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