Assume a firm with the following data:

$$ Target capital structure: $10\%$ debt, $20\%$ preferred stock, the remaining in common equity

$$ The tax rate $=21\%$

$$ The firm issued a $30-$year bond $10$ years ago with par $=$ $$1,000$ and pays $5\%$ annual coupons.

It is currently selling for $$1,200.$

$$ Preferred stock is currently trading for $$4$ per share and pays $$0\mathrm{.}32$ per share in dividends.

$100,000$ shares of preferred stocks

$$ Bond$-$yield risk premium $=6\%.$

$$ Common stock sells for $$45.$ Dividends of $$3\mathrm{.}00$ was just paid. Dividends are expected to

grow at $4\%$ per year indefinitely.

$$ Risk$-$free rate $=1\%$

$$ Expected market return $=8\%$

$$ Beta $=1\mathrm{.}3$

$$ Flotation cost of common equity $=15\%$

$$ Assume no flotation cost for debt or preferred stock

a$.$ What is the before$-$tax cost of debt?

b$.$ What is the after$-$tax cost of debt?

c$.$ What is the cost of preferred stock?

d$.$ What is the cost of common equity using CAPM?

e$.$ What is the cost of common equity using DCF $($no flotation AND with flotation$)?$

f$.$ What is the cost of common equity using bond yield?

$2$

g$.$ What is the average cost of common equity $($no flotation AND with flotation$)?$

h$.$ Using the average cost of common equity, what is the firm$$s WACC $($no flotation AND with

flotation$)?$

i$.$ Using DCF for cost of common equity, what is the firm$$s WACC if the firm uses only

retained earnings? $/$ Using DCF for the cost of common equity, what is the firm$$s WACC if the firm issues common stock?