Below is the balance sheet (book value) for JP Products Inc. (JPP). The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are 1,000 common shares and 100 preferred shares outstanding. Bonds are currently selling for $935.80.

Preferred shares pay a 7.5% dividend. The beta of the common stock is 1.5, the market risk premium is 7%, and the risk free rate is 4%. The companys tax rate is40% a) What is the JPPs cost of debt? b) What is JPPs cost of preferred shares? c) What is JPPs cost of common equity? d) What are the capital structure (weights) of JPP based on market values? (4 marks) e) What is JPPs weighted average cost of capital?

Assets Cash & short term securities rm $1,000 Accounts Receivable 3,000 Liabilities and Owners Equity Bonds, coupon =8%, $10,000 paid semi-annually (maturity = 10 years) | Preferred stock (par 2,000 value $20 per share) Common Stock 10,000 Retained earnings 10,000 Total $32,000 Inventories | Plant & equipment Total | 7,000 21,000 $32,000