During the last few years, Jana Industries has been too constrained by the high cost of

capital to make many capital investments. Recently, though, capital costs have been

declining, and the company has decided to look seriously at a major expansion program

proposed by the marketing department. Assume that you are an assistant to Leigh Jones,

the financial vice president. Your first task is to estimate Jana$$s cost of capital. Jones has

provided you with the following data, which she believes may be relevant to your task:

a$.$ The firm$$s tax rate is $40\%.$

b$.$ The current price of Jana$$s $12\%$ coupon, semiannual payment, noncallable

bonds with $15$ years remaining to maturity is $$1,153\mathrm{.}72.$ Jana does not use

short$-$term interest$-$bearing debt on a permanent basis. New bonds would be

privately placed with no flotation cost.

c$.$ The current price of the firm$$s $10\%,$ $$100$ par value, quarterly dividend,

perpetual preferred stock is $$116\mathrm{.}95.$ Jana would incur flotation costs equal to

$5\%$ of the proceeds on a new issue.

d$.$ Jana$$s common stock is currently selling at $$50$ per share. Its last dividend

was $$3\mathrm{.}12,$ and dividends are expected to grow at a constant rate of

$5\mathrm{.}8\%$ in the foreseeable future. Jana$$s beta is $1\mathrm{.}2,$ the yield on T$-$bonds is

$5\mathrm{.}6\%,$ and the market risk premium is estimated to be $6\%.$ For the own$-$bondyield$-$plus$-$judgmental$-$risk$-$premium approach, the firm uses a $3\mathrm{.}2\%$ risk

premium.

e$.$ Jana$$s target capital structure is $30\%$ long$-$term debt, $10\%$ preferred stock,

and $60\%$ common equity anwser this question, $.$ What is the market interest rate on Jana$$s debt, and what is the component

cost of this debt for WACC purposes?