Calculations Shown

A) As a consultant to GBH Skiwear, you have been asked to calculate the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the firm’s current capital structure as follows:

Bonds = $490,000 Preferred Stock = $100,000 Common Stock = $400,000. To finance the purchase GBH will sell 20 year bonds with a $1000 par value paying 8.1% per year (paid semiannually) at the market price of $972. Preferred stock paying a $2.47 dividend can

be sold for $34.94. Common stock for GBH is currently selling for $50.78 per share. The firm paid a $4.07 dividend last year and expects dividends to continue growing at a rate of 4.1% per year into the indefinite future. The firm’s marginal tax rate is 34%.

1) The weight of debt in the firm’s capital structure is? 2) The weight of preferred stock in the firm’s capital structure is? 3) The weight of common stock in the firm’s capital structure is? 4) The after tax cost of debt for the firm is? 5) The cost of preferred stock for the firm is? 6) The cost of common equity for the firm is? 7) The discount rate you should use to evaluate the warehouse project is?