The following facts apply to the XYZ Company:

Bonds can be issued to yield 0.10.

Preferred stock can be issued to yield 0.08.

Common stock can be issued with an expected yield to stockholders of 0.18.

The tax rates are 0.4 for all sections of this problem.

a. Compute the before-tax cash flows that have to be earned to compensate investors for $1,000 of capital:

(1) Debt. 

(2) Preferred stock. 

(3) Common stock.

b. Compute the WACC (after-tax) if the capital structure is 0.5 debt, 0.1 preferred stock, and 0.4 common stock.

c. Compute the weighted average return for an investor who invests in the same proportion (for different securities) as the capital structure.