Century Distribution Company is planning a $100 million expansion of its chain of discount service stations to several neighboring parishes. This expansion will be financed as follows: Debt issued with a coupon interest rate of 15 percent. The bonds have a 10-year maturity and a $1,000 face value, and they will be sold to net Century $990 after issue costs. Century's marginal tax rate is 25 percent. 15% preferred stock having a par value of $100 can be sold for $95.00. An additional fee of $7.00 per share must be paid to the underwriters. Century's common stock pays a dividend of $2 per share. New shares can be sold to net $14 per share. Century's dividends are expected to increase at an annual rate of 5 percent for the foreseeable future. Century's capital structure is made up as follows:

Debt $20 000,000

Preferred stock 5 000,000

Common equity 75 000,000

(a) (i) Explain what is meant by the term 'cost of capital'.

(ii) Explain TWO reasons why the WACC is important to a company

(b) Calculate:

i. Cost of debt (after tax)

ii. Cost of preferred stock

iii. Cost of common stock

iv. Weighted Average Cost of capital for Century Ltd.

(c) Many factors affect a firm's cost of capital. Discuss TWO factors that lie within the control of the firm and ONE factor that is outside of the firm's control.