8. Consider the following summary audited current year financial statements for JMJ, Inc. Income Statement (USD 000s) Balance Sheet (USD 000s) Revenue 1,000 Working capital 200 Operating expense 400 Net fixed assets 1,800 Depreciation 200 Total assets 2,000 EBIT 400 Interest 60 Long-term debt 800 NIBT 340 Preferred stock 100 Tax @ 26.5% NIAT 90 Common equity 1,100 250 Total capital 2,000 Facts: Long-term debt consists of 800 7.5% coupon bonds, $1,000 par value, 10 years to maturity. The bonds are trading at a price of $1,200. Preferred stock consists of 1,000 shares. 5% dividend rate. $100 par value. The preferred stock is trading at $125 per share. Common stock consists of 25,000 shares, $10 par value. The common shares are trading at $60 per share. The current year's common dividend was $5 per share. Common dividends will grow at a rate of 5% per year indefinitely. The company's beta is 1.25 Additional information: The yield on short-term US Government obligations is 2%. The market risk premium is 9.8% a. Compute the approximate cost (yield to maturity) of the company's debt (Rd). Use the formula used in class and you can check by using the YTM formula in Excel. b. Compute the cost of the company's preferred stock (Rp). c. Compute the cost of common equity (Re) using the dividend growth model d. Compute the cost of common equity (Re) using the capital asset pricing model b. Compute the cost of the company's preferred stock (Rp)