(18 marks) Phil Inn just started working for the family hotel management business, Inns Across Canada, and needs to determine the required rate of return for investment projects. He has discovered the following:

1. The firms beta is 1.4; the stock sells for $35.00 per share and there are 30,000,000 shares outstanding;
2. T-bills are yielding 1.5%, and the firms debt is currently yielding 4.8%.
3. The firms debt consists of 500,000 debentures, each with $1000 par value, with a current price of $750.
4. The preferred shares consist of 5,000,000 shares yielding 5.4% and selling for $15 each.
5. The Market Risk Premium is 5%.
6. The corporate tax rate is 35%.

Required:

Express dollar amounts in millions to two decimals, i.e., 123,456,789 is entered as 123.46

Express rates and weights as decimals, i.e., 12.34% is entered as 0.1234

a) What is the market value of debt? (2 marks)

b) What is the market value of common equity?(2 marks)

c) What is the market value of preferred shares? (2 marks)

d) What is the weight of common equity? (2 marks)

e) What is the weight of preferred shares? (2 marks)

For each of the following give the component cost, after-tax if applicable

f) Cost of debt (2 marks)

g) Cost of equity(3 marks)

h) Cost of preferred shares (1 mark)

i) Calculate the weighted average cost of capital? (2 marks)