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Find the cost of capital WACC. The company has three sources of capital available. The marginal tax rate for the company is 25%. Debt :

Find the cost of capital WACC. The company has three sources of capital available. The marginal tax rate for the company is 25%.

Debt: 3000 discount bonds with $1 000 par value, with 4 year to maturity. Bonds currently offer 4% yield to bondholders.

Preferred stock: 20000 shares outstanding with $90 market price and 6% yield.

Common stock: 200 000 shares outstanding with the book value of $20 but currently trading at P/B=2.5. One may apply CAPM to estimate the cost of equity. Inputs for estimations are: risk free rate 2.8%, market risk premium 8.0% and the stock beta is 1.25.

Find the cost of each financing source, capital structure weights for each source and finally WACC.

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