1. Amazon Inc. is a large producer of electronic components. 10 years ago the firm issued 30-year debt with a face value of $1,000. Today that debt is rated B by Standard and Poors and is worth $733.33 in the market. The coupon rate is 10% per year and interest payments are made semiannually. The company also has stock trading at $26 per share which just paid a dividend of 3.0806 per share and dividends are expected to grow 5.5% per year. The firms beta is 1.75.

   Amazon also uses preferred shares to finance its operations. The preferred shares outstanding pay a dividend of $12 per share and sell for $75 in the market. The risk-free rate is 4% and the expected return on the market is 12%.

   1. Assume the firm has a 40% tax rate and the firms target capital structure is 50% internal common equity (i.e., retained earnings), 15% external common equity (issue shares), 10% preferred equity and 25% debt. If Amazon has a cost of debt, r_d = 14%, find the WACC for Amazon Inc.