At the end of its 2017 fiscal year-end X Corporation had 50,000 shares of preferred stock
outstanding. The preferred stock has a book value of $30 per share. In addition, X paid
$75,000 in dividends to preferred shareholders in 2017. Xalso has $2,500,000 of interest
bearing debt outstanding and its after-tax cost of debt is 6.4%. The market value of X
Corporation’s common stock equity at year end is $6,240,000 and the company’s cost of common
equity is 9.4%.
a. What is the total book value of X Corporation’s preferred stock at the end of 2017?
b. Estimate the cost of X Corporation’s preferred equity capital.
c. Calculate X Corporation’s weighted average cost of capital.