Assume the market value of Maxy Corp.s ordinary equity, preferred equity and debt are $7 bullion, $4 billion and $10 billion respectively. The firm has a beta of 1.4, the market risk premium is 6% and the risk-free rate of interest is 4%. The firms preferred stock pays a dividend of $3 each year and trades at a current price of $25 per share. The firms debt trades with a current yield to maturity of 8.5%. The firms marginal tax rate is 35%.

i. What is the firms cost of ordinary equity? [1 mark]

1. What is the firms weighted average cost of capital? [3 marks]