Edison Corp. was founded on May 7, 2000 by a group of engineers who wanted to prove that electric vehicles can be better, quicker and more fun to drive than gasoline cars. Today, on May 7, 2021 they know that they are very close to build a more efficient electric car than the ones in the market. Their car will be able to go longer and faster with its new ground breaking motor. Chief Engineer Officer, Mathew, thinks that they will need an additional three years to finish the project and start selling the cars with the new electric motor. As a result, Matthew asks Chief Financial Officer, Janet, if the company can postpone distributing dividends for the next three years to its preferred and common stock investors.

Information on Edison Corps cumulative preferred and common stock are as follows.

Cumulative Preferred Stock: It has $30 par value and its dividend rate is 8%. The required rate of return on the preferred stock is 9.375% today. As of today, the company does not have any unpaid dividends to the preferred stockholders. If Janet agrees to postpone the dividend payments, the dividend payments to the preferred stockholders will be deferred for the next three years as well. Hence, the preferred stockholders will get their first dividend at the end of year 4.

Common Stock: If the company postpone the dividend payment for three years, the first dividend the company distributes to its common stockholders will be $1.5 per share in year 4. After that, with the new electric motor, their sales and dividends will grow at 25% for the next three years. Then, the engineering team expects the competitors of the company to catch up with the new technology. Therefore, the growth in sales and dividends will decrease to a level that can be maintained without any external equity financing and constant debt ratio, and stay at this level forever. The ROA and ROE of the company are 8% and 12.5%, respectively. At that point, the company plans to distribute 60% of its earnings as dividends. Analysts consider the risk of the company to be high in the next 5 years. Therefore, investors require a return of 16% on common stock of the company during that period. However, after five years, investors required rate of return will decrease to 12% forever.

Edison Corp. also issued some green bonds to finance its investment in this new ground breaking motor. These green bonds are issued on August 7, 2015 with a time to maturity of 15 years and a coupon rate of 7.6%. Bond has $1,000 par value and makes quarterly coupon payments. This bond is trading at a price of $1,054.59 in the market on May 7, 2021. Calculate the yield to maturity for this green bond. Please do not use excel