COMAPNY 1s most recent dividend was $3 per share and dividends are expected to grow at a 5 percent annual rate indefinitely. The stock sells for $31.5 per share now. The company has a target capital structure of 75 percent common stock and 25 percent debt. Its cost of debt is 9 percent. The relevant tax rate is 35 percent.

a) What is COMAPNY 1s cost of equity? (3 marks)

b) What is COMAPNY 1s WACC? (4 marks)

c) If the firm can refinance its debt with preferred stock with a cost of 8 percent. From the perspective of cost minimization, should the firm do it?