a$)$ Duffet Corporation has a $$1000$ par value bond with a $6\mathrm{.}5\%$ coupon rate.

The bond matures in $20$ years. Suppose coupons are paid annually.

The required return is $9\%.$ Compute the value of the bond.

$(6$ marks$)$

b$)$ BuzzMart Inc. issued a $30-$year, $7\%$ coupon interest rate, $$1000$ par value bond that pays interest semi$-$annually. The required return is currently $6\%.$ Compute the value of the bond.

$(6$ marks$)$

c$)$ Tsuz Industries has paid a dividend of $$3\mathrm{.}50$ per share for the past year $($D$0=$$$3\mathrm{.}50).$ The Chief Finance Officer expects the dividend to grow at a rate of $5\%$ per annum for the foreseeable future. Assume investors require a rate of return of $12\%.$

$($i$)$ Calculate the current price of the stock.

$(2$ marks$)$

$($ii$)$ If the stock currently trades at $$53,$ would you buy it$?$

$(1$ mark$)$

d$)$ Rainbow Airways is in the $40\%$ tax bracket. Information on the company's debt, preferred stock and common stock are as follows:

$\backslash$table$[[$Debt$,\backslash$table$[[$The company can issue bonds at a yield to$],[$maturity of $8\mathrm{.}25\%.]]],[$Preferred Stock,$\backslash$table$[[$The company can sell $9\%$ preferred stock at its$],[$$$55$ per share par$-$value. Floatation costs are $$5],[$per share.$]]],[$Common Stock,$\backslash$table$[[$Price per share is currently $$50.$ Dividends are$],[$projected at $$4$ per share next year with a dividend$],[$growth rate of $5\%.$ There are no floatation costs.$]]]]$

$($i$)$ Calculate the cost of debt.

$(2$ marks$)$

$($ii$)$ Calculate the cost of preferred stock.

$(2$ marks$)$

$($iii$)$ Calculate the cost of common stock.

$(2$ marks$)$

$($iv$)$ Rainbow Airways' capital structure is $20\%$ debt, $40\%$ preferred stock and $40\%$ common stock. Calculate the weighted average cost of capital $($WACC$)$

$(4$ marks$)$