All bonds have a face value of $1000 unless stated otherwise

All interest rates are annually compounded unless stated otherwise

2,000,000 shares outstanding with market share price of $80 per share

No preferred shares

A total of 40,000 bonds with YTM=6%. All bonds mature 18 years from now and have the same annual coupon rate.

A debt-to-equity ratio of D/E=1/3

A corporate tax rate of T=30%

It is expected to pay $4 dividends next year and dividends are expected to grow at a constant rate.

If it needs to issue new equity, it faces a flotation costs of F=15%

Assume also that the risk-free interest rate is 5%, market expected rate of return is 14% and the firms beta is 0.6

1Find the value of Debt

2: Find the coupon rate for the firms existing bonds

3: Find the cost of internal equity

4Find the dividend growth rate

5: Find the cost of external equity

6: Find the cost of debt (note: just the cost of debt, not after-tax cost of debt)

7: Find WACC assuming the firm uses retained earning