1. C10) Firm calculating cost of capital for major expansion program.

• Tax rate = 40%.
• 10-year, 12% coupon, semiannual payment noncallable bonds sell for $1,153.72. New bonds will be privately placed with no flotation cost.
• 8%, $100 par value, quarterly dividend, perpetual preferred stock sells for $111.10.
• Common stock sells for $60. D₀ = $4.19 and g = 5%.
• b = 0.8; r_RF = 7%; RP_M = 6%.
• Bond-Yield Risk Premium = 2%.
• Target capital structure: 30% debt, 20% preferred, 50% common equity.

1. What is the companys after-tax cost of debt?
2. What is the company's cost of preferred stock?
3. What is the company's cost of common stock, using DDM, CAPM, Bond-yield risk premium approaches respectively?
4. What is the companys WACC (assuming using cost of common stock calculated by DDM)?