Company XYZ has the following capital structure: 25% debt; 15% preferred stock; and, 60% equity. The company pays an effective tax rate of 40%.
A. If the company can issue new debt with a 12% interest rate, what is its cost of debt capital?
B. If the company can issue new preffered debt with a $10 dividend at an offering price of $90 per share, what is the cost of its preferred (stock) capital?
C. If the "beta" of stock XYZ with respect to the "stock" market were 1.2, the risk free rate were 6%, and the market risk premium were 5%, what is the cost of equity (retained earnings) capital?
D. Given the current capital structure, what is the weighted average cost of capital?