A company has the following capital structure.

50,000 shares of common stocks outstanding, trading at Pcs,0 = $10 per share.

20,000 shares of preferred stocks trading at Pps,0 = $5 per share, that pays a 0.5 dollar dividend per share.

The company also sold a 20-year non-amortized corporate bond worth 1 million at par in period 0, with a yield to maturity (YTM) of 5%. The corporation faces a tax rate of = 25%.

The companys period 0 dividend per share is 0.5 dollars and is expected to grow by 10% per year.

Q1

Whats the rate of return expected by the preferred shareholders rps?

Q2.

According to the Constant Dividend Growth Model, whats the rate of return required by the common stock shareholder? Denote this number by rcs,0

Q3.

Whats the companys WACC in period 0?

Q4

In period 1, shortly after dividends are paid to the preferred stockholders, the company borrows a 10-year term amortized bank loan at APR of 5% and uses the proceeds of which to buy back (retire) outstanding preferred stocks at a price of Pps,1 = 5.25 dollars per share. Following this news, the price of common stocks drops to Pcs,1 = 9.5 dollars per share in period 1.

Based on the information here, answer questions Q4(a), Q4(b), and Q4(c).

a. Whats the actual rate of return to an investor who bought one share of preferred stock in period 0, and sells it back to the company in period 1? (Hint: do not forget dividends).

b. The financial market now believes that the company will deliver a dividend growth rate of 12% in the future. According to the Constant Dividend Growth Model, whats the rate of return required by the common stock shareholder in period 1? Denote this number by rcs,1

c. Whats the companys WACC in period 1?