Max Corp. has three main sources of external funding: bonds, bank loans, and common stock. The firm's tax rate is 40%. Further information on these sources follows below. Bonds: 10-year 11% bonds issued 3 years ago; currently priced at $950; 10,000 bonds outstanding (semi annual) Bank loans: $500,000 principal outstanding on a new loan at rate of 9%. Common Stock: currently selling at $10/share; next annual dividend expected to be $1.1 (1 year from now) and dividend expected to grow at a rate of 7.15% forever thereafter; 1,000,000 shares outstanding.
A. find the market value weights for each of the three sources of external funding.
B. find the component costs of capital for each of the three sources of external funding.
C. calculate WACC. can you explain how you calculate the weighted averages?