A company has 400,000 shares of common stock outstanding at a market price of $25 a share and a Beta of 0.72. This stock just paid an annual dividend of $1.10 a share (D₀). The dividend is expected to grow 3 percent annually. The firm also has 50,000 shares of 6.5 percent preferred stock with a market value of $60 a share. The preferred stock has a par value of $100. The company has $3.5 million of face value bonds with semiannual payments and a coupon rate of 12 percent. The bonds are currently priced at 104 percent of face value and mature in 19 years. The tax rate is 21 percent. The risk-free rate is 0.53 percent and the market risk premium is 11.15 percent.

(a) What is the Cost of Debt (R_D)? Blank 1

(give in percentage terms: 0.0123 = 1.23%)

(b) What is the Cost of Preferred Stock (R_P)? Blank 2

(give in percentage terms: 0.0123 = 1.23%)

(c) What is the Cost of Common Equity (R_s using the DDM)? Blank 3

(give in percentage terms: 0.0123 = 1.23%)

(d) What is the Cost of Common Equity (R_s using CAPM)? Blank 4

(give in percentage terms: 0.0123 = 1.23%)

(e) What Cost of Common Equity will you use to calculate the WACC (R_s)? Blank 5

(give in percentage terms: 0.0123 = 1.23%)

(f) What is the market value of the Debt (D)? Blank 6

(Not the face value, but the current market value!)

($x,xxx,xxx)

(g) What is the market value of the Preferred Stock (P)? Blank 7

($x,xxx,xxx)

(h) What is the market value of the Common Stock (E)? Blank 8

($xx,xxx,xxx)

(i) What is the total market value of the firm (V)? Blank 9

($xx,xxx,xxx)

(j) What is the Weighted Average Cost of Capital (WACC)? Blank 10

(give in percentage terms: 0.0123 = 1.23%)