Use the following information to answer part A through C:
Acme Services' CFO is considering whether to take on a new project that has average risk. She has collected the following information: The company has outstanding bonds that mature in 26 years.
The bonds have a face value of $1,000, an annual coupon of 7.5%, and sell in the market today for $920. There are 10,000 bonds outstanding.
The risk-free rate is 6%.
The market risk premium is 5%.
The stock's beta is 1.2.
The company's tax rate is 40%.
The company has 50,000 shares of preferred stock with a par value of $100. These shares are currently trading at $105, and pay an annual dividend of $5.40.
The company also has 1,850,000 common shares trading at $25. These shares last paid an annual dividend of $0.93.
A) What is Acme's after-tax cost of debt?
4.95%
8.26%
8.87%
9.30%
9.00%
B) What is Acme's cost of preferred equity?
4.75%
5.14%
5.74%
9.30%
9.89%
C) What is Acme's wd?
4.39%
54.65%
4.93%
45.13%
15.16%