Assume you expect to retire in 30 years. You want to be assured that you can provide yourself with annual cash flows of $70,000 at the end of each year after retirement. You plan to receive those cash flows for 25 years after retirement. Assuming you can earn a 9 % yield on your investments before retirement and 6 % after retirement, how much will you have to invest each year in order to provide for your retirement?

Problem 4 10 points

Use the following information to find the weighted average cost of capital:

Perry Corporation can issue bonds at a market rate of interest of 10%. The tax rate for Perry is 40%. Preferred stock with annual dividends of $10 can be issued for $100. Common stock with dividends in year one of $2 can be issued for $20. Common stock dividends are expected to grow at a 7% rate.

Following is the capital structure for Perry:

Book Value Market Value

Debt 400 300

Preferred Stock 200 200

Common Equity 400 1,500

Using market values to determine the weight of each source of financing determine the weighted average cost of capital for Perry Corporation.