(c) Walton Bangladesh Ltd. is interested in measuring its overall cost of capital. Current

investigation has gathered the following data. The firm is in the 40% tax bracket. Capital

structure weights are 35% for Long Term Debt, 25% Preferred Stock and 40% Common Stock.

Debt: The firm can raise debt by selling Tk.1, 000-par-value, 8% coupon interest rate, 20-year

bonds on which annual interest payments will be made. To sell the issue, an average discount of

Tk.20 per bond would have to be given. The firm also must pay flotation costs of Tk.15 per

bond.

Preferred stock: The firm can sell 9% preferred stock at its Tk. 90-per-share par value. The

cost of issuing and selling the preferred stock is expected to be Tk.8 per share. Preferred stock

can be sold under these terms.

Common stock: The firm's common stock is currently selling for Tk. 90 per share. The firm

expects to pay cash dividends of Tk. 7 per share next year. The firm's dividends have been

growing at an annual rate of 6%, and this growth is expected to continue into the future. The

stock must be underpriced by Tk. 7 per share, and flotation costs are expected to amount to Tk.

5 per share. The firm can sell new common stock under these terms.

(i) Calculate the after-tax cost of debt.

(ii) Calculate the cost of preferred stock.

(iii) Calculate the cost of common stock.

(iv) Calculate the firm's weighted average cost of capital using the capital structure

weights.