The capital structure for the First Pacific Corporation is provided below. The company plans to maintain its debt structure in the future. The firm has bonds that pay a 6% coupon rate, mature in 10 years and sell for $1,095. The preferred stock is selling for $47 and pays a $3.50 dividend. The common stock is selling for $35, just paid a $1.85 dividend and is expected to grow by 6% for the indefinite future. The firm’s marginal tax bracket is 34%. What is FP’s weighted average cost of capital? Show all work.
CAPITAL STRUCTURE
($000)
Bonds $ 160,000
Preferred Stock $ 50,000
Common Stock $ 350,000
A) What is the before-tax cost of debt
B) What is the after-tax cost of debt
C) What is the after-tax cost of preferred stock is
D) What is the after-tax cost of common stock is
E) What is the weighted average cost of capital (WACC)