CSUSB Corp. just issued a dividend of $3.10 per share on its common stock. The company is expected to maintain a constant 6.4 percent growth rate in its dividends indefinitely. The stock currently sells for $62 a share. The common stock has a beta of 1.8, the risk-free rate is 5.8 percent and the expected return on the market is 10 percent. The company has an issue of preferred stock with a $4.75 stated dividend that just sold for $84 per share. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost (coupon rate) of 10 percent annually. The company’s tax rate is 35%. CSUSB Corp. has a target capital structure of 75% common stock, 5% preferred stock, and 20% debt.
What is the company’s cost of equity using the dividend growth method?
What is the company’s cost of equity capital using the SML approach?
What is the company’s cost of preferred stock?
What is the company’s pretax cost of debt? What is the aftertax cost of debt?
Using the company’s average cost of equity (between the two methods), what is the firm’s WACC?