Cost of Capital
? Debt: 8,000 10 percent coupon bonds, with 7 years to maturity, and a quoted price of 94. These bonds pay interest quarterly.
? Common stock: 400,000 shares of common stock selling for $45. The stock will pay a dividend of $2.5 next year. The dividend is expected to grow by 4.5 percent per year indefinitely. The beta of the stock is 1.5.
? Preferred stock: 7,000 shares of preferred stock with a current price of $60 and a dividend of $1.5 per share.
? Market: The corporate tax rate is 30 percent, the expected return on the market is 12 percent, and the risk-free rate is 2 percent.
Calculate the WACC (SHOW ALL YOUR CALCULATIONS, i.e. weights, cost of debt, cost of common equity, and cost of preferred equity).