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Brandt-Leland Inc. has a target capital structure consisting of 30% debt, 5% preferred stock, and 65% common equity. Brandt-Leland has 20-year, 7.25% semiannual coupon bonds
Brandt-Leland Inc. has a target capital structure consisting of 30% debt, 5% preferred stock, and 65% common equity. Brandt-Leland has 20-year, 7.25% semiannual coupon bonds that are selling for $875. Brandt-Leland's preferred stock sells for $95 and pays a 9% dividend on a $100 par value. Brandt-Leland is a constant growth firm with a growth rate of 4% and just paid a dividend of $2.35 on its common stock that is currently selling for $30.00 per share. The beta is 1.25 and the risk-free rate is 5.25%. The required return on the stock market is 11.50%. The firm's tax rate is 25%. (8 points) a. What is Brandt-Leland's component after-tax component cost of debt? b. What is Brandt-Leland's component cost of preferred stock? c. What is Brandt-Leland's component cost of common equity based on the CAPM? d. What is Brandt-Leland's component cost of common equity based on the DCF model? e. What is the WACC for Brandt-Leland assuming the firm use an average component cost of equity given the two methods used
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