1. What is your final estimate for the cost of equity, Rs?

2. What is Jana's weighted average cost of capital (WACC)?

3. Jana is interested in establishing a new division that will focus primarily in developing new internet based projects. In trying to determine the cost of capital for this new division, you discover the specialized firms involved i similar projects have on average the following characteristics: their capital structure is 10% debt and 90% common equity; their cost of debt is typically 12% ; and they have a beta of 1.7. Given this information what would your estimate be for the new division's cost of capital?

411 MINI CASE During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your 6rst task is to estimate Jana's cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm's tax rate is 40%. The current price of Jana's 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is$1,15372. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed withno flotation cost. The current price of the firm's 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new issue. Jana's common stock is currently selling at $50 per share. Its last dividend (Do) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future Jana's beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.29% risk premium. Jana's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity. To help you structure the task, Leigh Jones has asked you to answer the following questions